UPS focusses on efficiency and revenue quality to improve US operating margins

Better than expected numbers driven in part by changes in demand that emerged from the pandemic

UPS announced that Q2, 2020 consolidated revenue increased to US$20.5 billion, a 13.4% increase from Q2, 2019. Net income was US$1.8 billion for the quarter; adjusted net income was US$1.9 billion, 8.8% above the same period in 2019. Operating profit was US$2.2 billion, and adjusted operating profit was US$2.3 billion, up 7.4% compared to last year’s Q2.

The results were better than expected, driven in part by the changes in demand that emerged from the pandemic, including a surge in residential volume, COVID-19 related healthcare shipments and strong outbound demand from Asia.

US Domestic segment revenues reached US$13,074.0 million in Q2, 2020, up 17.4%, as operating profit decreased 2.2% to US$1,182.0 million. Average daily volume increased 22.8%, reaching 21.1 million packages per day. Demand for residential delivery surged in the quarter, driving B2C shipment growth up 65.2%. The operating margin was 9.0% with an adjusted operating margin of 9.3%.

International segment revenues increased 5.7% to US$3,705.0 million in Q2, 2020, as operating profit climbed 16.3% to US$771.0 million. Average daily volume grew 9.8%, driven by strong outbound demand from Asia and an increase in cross-border eCommerce in Europe. Operating margin was 20.8% with an adjusted operating margin of 22.7%.

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Supply Chain and Freight segment revenue increased 8.5% to US$3,680.0 million as operating profit declined 4.8% to US$259.0 million. Revenue increases were driven by elevated air freight forwarding demand out of Asia, offset in part by weaker demand early in the quarter in the LTL and truckload brokerage units. The operating margin was 7.0%, with an adjusted operating margin of 7.3%.

Looking ahead, UPS is not providing revenue and diluted earnings per share guidance due to the uncertainty around the timing and pace of the economic recovery. The Company is unable to predict the extent of the business impact or the duration of the coronavirus pandemic, or reasonably estimate its operating performance in future quarters.

Using the scale and flexibility of a global integrated network, UPS successfully managed operational challenges throughout the quarter. Moving forward it is focusing on efficiency and revenue quality to improve US operating margins longer term.

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