United Parcel Service, commonly known as UPS, faced a challenging second quarter, falling short of revenue expectations as the company navigates changes in customer behavior. For the three months ending June 30, revenue dipped to $21.82 billion, a decline from the $22.06 billion reported in the same period last year.
Analysts had estimated the figure would reach $22.24 billion, highlighting the unexpected downturn. Furthermore, adjusted earnings per share also took a hit, dropping to $1.79 from a previous $2.54 and missing the consensus forecast of $1.99 among investors. As a result, UPS shares traded down sharply, plunging 13% during Tuesday's session. The revenue breakdown showcased a drop in domestic package revenue, which amounted to $14.12 billion compared to $14.4 billion a year ago.
International package revenue fell slightly by 1% to $4.37 billion, while the supply chain solutions segment saw a modest increase of 2.6%, generating $3.33 billion. In response to these developments, Chief Executive Carol Tome described the quarter as a significant turning point, mainly because it marked the return to volume growth in the US market for the first time in nine quarters.
She acknowledged, however, that the operating profit for the first half of 2024 had decreased in comparison to the previous year. Looking ahead, the company is anticipating revenue for the year of approximately $93 billion, a downward revision from its earlier forecast, which ranged from $92 billion to $94.5 billion.
Analysts had previously expected revenue to be around $92.86 billion for the year. Tome's remarks on the call highlighted the front-loading of costs associated with implementing new labor contracts, which weighed on the financial results. CFO Brian Dykes elaborated that a shift in consumer behavior had occurred, with customers opting for more economical shipping options.
There was a noted shift from air services to ground services, as well as a move from ground to SurePost, an economical option for non-urgent residential shipments. Dykes indicated that this transition had resulted in a 7.8% decline in total air average daily volume, while ground average daily volume saw an increase of 2.3%. In light of the current challenges, UPS has also revised its full-year adjusted operating margin guidance, lowering it to approximately 9.4%, down from the previously forecasted range of 10% to 10.6%.
Capital expenditures expectations have also been reduced from $4.5 billion to $4 billion. Overall, the updated guidance reflects lower-than-expected first-half revenue, operating profit at the low end of the expected range, and the company's anticipation that shifts in product trends will persist through the remaining months of the year.
The latest trading figures showed the stock priced at $125.90, marking a notable change of -19.28, equating to a percentage change of -13.28..