UPS saw sinking volumes, revenue and income in a quarter that weighed heavily on market dynamics for parcel shipping—namely smaller packages.
In an earnings call Tuesday morning, CEO Carol Tomé said U.S. consumer sentiment that was “near historic lows” during the quarter unfavorably impacted the small package market. The CEO said the ongoing tariff situation caused consumers to start trading down in certain categories.
“Consumers are trading down, while at the same time, splurging,” Tomé said, referring to recent research from McKinsey, in which one-third of consumers traded down in one category to afford something in another. “For the first time in three years, consumer spending on discretionary categories like restaurants and automobiles outpaced growth in essential items.”
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Tomé also said that American manufacturing activity “remained soft,” further impacting market demand.
U.S. average daily volumes declined 7.3 percent in the quarter to 16.6 million packages, weighing down the wider global volume decrease of 5.7 percent to 19.7 million.
America’s largest package delivery firm saw its stock plummet more than 10 percent Tuesday after the earnings report was released, with the company pulling its revenue and operating profit guidance for 2025.
“There’s so much uncertainty out there. We are building scenarios and the range of the scenarios, well it’s wide enough to drive one of our 18 wheelers through,” Tomé said. She noted that July volumes are “better than what we’ve been seeing” but that it is not clear if it was just impacted by Amazon Prime Day and other retail promotions.
Additionally, Tomé pointed to inventory purchases ahead of the Aug. 1 tariff deadline, and the uncertainty related to the Aug. 12 China tariff negotiation deadline, as factors preventing the company from providing guidance.
“There’s uncertainty around tariffs and then there means there’s uncertainty around consumer demand. So consider this, at the end of the first quarter, our customers had inventory and they sold that inventory down in the second quarter. They’re now at a point where they need to replenish their inventories,” said Tomé. “We just don’t know.”
UPS second quarter sales declined 2.7 percent to $21.2 billion and net income came it at $1.3 billion.
However, the company saw just a 0.8 percent revenue dip in the U.S. despite the 7.3 percent volume decline in a sign that it is increasing revenue per piece in its network. This comes as the company phases Amazon shipments out of its ecosystem in an effort to generate more of a profit from its deliveries. These Amazon “glide down” efforts have been going as planned, with chief financial officer Brian Dykes saying average daily volumes are expected to contract 30 percent in the second half year over year. In the third quarter, UPS expects to pull 500,000 Amazon parcels out of its network.
Despite the soft overall parcel market, Tomé said UPS gained share in parcel delivery, even as smaller last-mile delivery carriers like LaserShip and SpeedX have expanded their business.
Internationally, U.S. trade policy shifts cut into UPS’ most profitable trade lane in the second quarter, with average volumes from China to the U.S. declining 34.8 percent in the May and June from year-ago totals.
This is largely due to the acceleration of China tariffs to as much as 145 percent and the elimination of the duty-free de minimis provision to kick off May, further pressuring volumes for smaller parcels that used to qualify for the trade exemption.
Dykes said the China-to-U.S. trade lane “declined more than what we expected.” But the logistics giant was able to recoup some of that movement with volumes increasing 22.4 percent from China to the rest of the world. Tomé said the company doubled its capacity between India and Europe.
In total, international package volume increased 3.9 percent to 3.2 million parcels as units out of Southeast Asian countries like Vietnam and Malaysia saw 20 percent growth.
In a preview of the holiday season, Tomé said UPS customers have not yet submitted their peak plans, which is an indication that they are having difficulty in forecasting demand for the final two months of the year.
“We have about 100 customers that drive 80 percent of the surge during peak. Ordinarily, we don’t get peak plans until the August and then final plans the September. I think they’re going to be pushing them more into September as they’re working through their plans,” said Tomé. “In my conversations with CEOs, no one’s telling me they’re not going to have a peak. But they’re not in a position to dimensionalize that for us.”
Tomé also revealed that participating drivers in the voluntary separation program will begin leaving the company in August. The buyout program is part of the wider $3.5 billion in cost savings UPS is on track to achieve in 2025 as part of its network reconfiguration.
