UPS announced its second-quarter earnings in July. The company reported a year-over-year growth in revenues of almost 10 percent and announced a voluntary retirement plan (VRP) — a buyout for an undisclosed number of employees — as part of the company’s ongoing transformation.
The VRP cost UPS about $263 million this year, primarily spent on severance pay, the company reported in the July 19 call. Executives don’t expect to see savings this year. But after 2019, they believe the buyout will save the company about $200 million per year.
This announcement comes just weeks after the union that represents UPS employees reached a tentative agreement with management. Executives promised to give employees months of notice before implementing technologies that could make jobs obsolete, though they did not promise that employees would be protected from the risks and uncertainties of greater automation.
UPS remains the most valuable brand in shipping. But it’s buyouts are a stark reminder that carriers are constantly pursuing efficiency. That means fewer jobs in UPS’s trucks, warehouses and even its offices. It likely means greater profits for UPS shareholders. But it’s not likely to translate into savings for shippers — unless shippers know how to capitalize on it.
UPS’s Q2 Report
UPS 2018 Q2 earnings call reported $1.94 per share, inching past the Zacks Consensus Estimate of $1.92 and jumping nearly 23 percent year over year.
Revenues climbed to $17.46 billion in Q2, up nearly 10 percent year over year.
Included in that figure were:
- Domestic package revenues hit $10.35 billion in Q2, a 6.3 percent increase. Revenue per piece rose 3.6 percent year over year.
- International Package revenues grew to $3.6 million, up 14 percent year over year.
- Supply Chain and Freight revenues rose 16 percent to $3.5 million
Volumes expanded slightly in Q2 as well. Average daily package volumes increased 2.6 percent. Ground products rose about 3 percent and Next Day Air volume expanded by 2 percent.
UPS’s capital expenditures totaled $2.8 billion in Q2.
For comparison, in Q1:
- UPS collected $17.1 billion in revenue
- Earnings per share were $1.55
Both metrics were higher in Q2.
UPS expects annual adjusted earnings per share of between $7.03 and $7.37 this year.
Key Results From The Voluntary Retirement Plan
UPS introduced its Voluntary Retirement Plan, or VRP, on April 25. The company asked a group of U.S. employees who were already eligible for retirement to accept financial buyouts.
Those who accepted the buyouts — UPS did not say how many employees did — will leave the company over the course of the next year on a staggered schedule.
In Q2, UPS recorded a pre-tax “transformation charge” of $263 million, which was mostly spent on severance pay. The company does not expect the retirements to impact earnings this year. But around Q2 2019, UPS expects to see annual savings of about $200 million.
The VRP is one of the first visible results of UPS’s two-year transformation initiative, which aims to position the company to respond to fundamental changes in package delivery. To name a few, residential deliveries now outnumber commercial ones, procurement costs are rising, and Amazon is making a play for market share in the shipping industry.
Although the VRP will save UPS money in the long run, the company is in the midst of a three-year capital investment plan. In 2018 alone, the company plans to spend as much as $7 billion to expand its delivery market.
UPS will share more details of the plan at a Transformation Conference in New York in September. The event will be webcast.
What Does This Mean For Shipping-Based Companies?
One of the transformation plan’s promises is to streamline internal processes at UPS. That could make day-to-day life easier for some shipping-based companies — tasks formerly handled by several departments could be consolidated, for example — but we won’t know exactly how until the plan’s initiatives are complete.
For companies that rely on UPS, this transformation is likely a good thing. It could lead to new service options or greater reach, and increased efficiencies could reduce costs. And for those who rely on its primary competitor, FedEx — if UPS evolves, FedEx will have to keep up, and vice versa. More competition means both companies will have to work harder to keep their clients.
Shippers can’t sit back and wait for these benefits, however. If your carrier boasts about increased efficiencies, make sure you get a piece of those savings by negotiating for better rates. As new technologies and competitors enter the market, examine data about your existing shipping needs to understand how they could benefit your business.
Reveel’s team help supply chain leaders review their contracts, identify inefficiencies and strategize for contract negotiations. Our clients routinely use our advice and tools to save 15 to 20 percent on shipping. Give us a call today and let’s talk about how we can help your bottom line.
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