EPS of $1.87 decreased by 52.8% from previous year
Gross margin of 19.3%
Net income of 1.61B
"Our salespeople did an outstanding job of winning back diverted volume...Project Brown will continue into 2024." - Carol Tome, CEO
United Parcel Service Inc (UPS) Q4 2023 Financial Results: Navigating Challenges Amid Strategic Changes
Executive Summary
In Q4 2023, United Parcel Service Inc (UPS) reported a revenue decline of 7.8% year-over-year (YoY) to $24.9 billion, reflecting ongoing challenges from a soft macroeconomic environment and significant labor contract negotiations. Operating profit decreased 27.1% YoY to $2.8 billion, yielding an operating margin of 11.2%. Management has highlighted a turnaround strategy focused on capturing market share, especially with initiatives under Project Brown aimed at reclaiming diverted volume. Despite these challenges, free cash flow remained robust at $5.3 billion, demonstrating efficient cash management amidst declining revenue.
With total average daily volume declining 7.5% from last year, UPS successfully executed a sequential volume increase of 30% from Q3 to Q4, recovering nearly 60% of previously diverted volumes. This was touted as the highest sequential volume ramp in the company’s history. Management attributes this to strong sales efforts tied to Project Brown, aimed at enhancing overall customer engagement and service speed.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
24.92B
-7.83%
18.31%
Gross Profit
4.82B
50.83%
9.00%
Operating Income
2.48B
-45.20%
47.35%
Net Income
1.61B
-53.52%
42.41%
EPS
1.88
-52.76%
43.51%
Key Financial Ratios
currentRatio
1.1
grossProfitMargin
19.3%
operatingProfitMargin
9.94%
netProfitMargin
6.44%
returnOnAssets
2.27%
returnOnEquity
9.27%
debtEquityRatio
1.33
operatingCashFlowPerShare
$2.82
freeCashFlowPerShare
$0.42
dividendPayoutRatio
83.4%
priceToBookRatio
7.78
priceEarningsRatio
20.96
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Management Insights:
- Carol Tome, CEO emphasized, "2023 was a unique and quite candidly a difficult year. We experienced declines in volume, revenue, and operating profit in all three of our business segments."
- Commentary on proactive measures: "Our efforts to win back diverted volume and pull through new volume...You recall our consolidated revenue for the year was $91 billion, a decrease of 9.3%."
- On future growth: "In 2024, we expect to generate consolidated revenue ranging from approximately $92 billion to $94.5 billion...with stark contrasts between our first-half and our second-half performance."
Our salespeople did an outstanding job of winning back diverted volume...Project Brown will continue into 2024.
— Carol Tome, CEO
We are exploring strategic alternatives for our truckload brokerage business known as Coyote...it’s a business that's highly cyclical with considerable earnings volatility.
— Brian Newman, CFO
Forward Guidance
### Future Outlook:
UPS projects a conservative revenue growth forecast for 2024, with consolidated revenue expected between $92 billion and $94.5 billion. Management indicated that the low end of their guidance reflects anticipated market conditions, while the top end anticipates share gains in a recovering economy. Operating margins are expected to range from 10% to 10.6%. Factors such as labor cost adjustments and the successful execution of Project Brown are critical to achieving these targets. The first half of 2024 is projected to be challenging due to persistently high labor costs from the new contract, but a stronger second half is anticipated as volume growth returns.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
UPS Focus
19.30%
9.94%
9.27%
20.96%
GXO
13.00%
3.86%
2.51%
24.92%
JBHT
9.60%
6.15%
3.74%
33.57%
EXPD
14.60%
8.75%
6.64%
29.05%
CHRW
6.05%
2.44%
2.18%
82.70%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
While UPS's recent performance shows some concerns primarily due to external pressures, its strategic initiatives and strong cash flow position signify potential for future growth. Investors should track the execution of Project Brown and the outcomes from workforce restructuring as key determinants of performance in 2024. The projected recovery in the second half of the year along with ongoing innovations presents a cautiously optimistic investment outlook.
Key Investment Factors
Growth Potential
UPS's growth potential is supported by strategic expansion plans, especially in healthcare logistics and International Package services, with the introduction of a new air hub in Hong Kong expected to improve operational capacity in profitable markets.
Profitability Risk
Major risks include persisting macroeconomic pressures, competition from other logistics firms, and uncertainties linked to the ongoing labor contract impacts, which may compress margins in the near term.
Financial Position
Despite recent declines in revenue and profitability, UPS retains a solid financial position, with free cash flow of $5.3 billion enabling continued dividends and share repurchases, bolstering investor confidence.
SWOT Analysis
Strengths
Strong cash flow generation ($5.3 billion in FY 2023)
Established market leader in logistics with a global network
Ongoing innovation in services, such as healthcare logistics
Weaknesses
Recent declines in revenue and operating profit across all segments (Q4 down 27.1%)
High employee turnover and retention challenges in managerial roles
Opportunities
Expansion in the healthcare logistics market projected to grow significantly
Increased market share potential through improved product offerings and service delivery
Threats
Intensifying competition from rivals and emerging logistics firms
Market volatility stemming from macroeconomic uncertainties, including recessionary pressures