The shipping carrier says digitalization investments aimed at attracting new small business customers are paying off.

At United Parcel Service Inc. (UPS), year-over-year revenue and operating profits grew during Q1, despite average daily volume that fell short of its plan. The shipping carrier also reported progress in digitalizing its operations.

UPS reported revenue of $24.378 billion for Q1, 2022, which ended March 31, up 6.4% compared with $22.908 billion during the comparable quarter a year earlier. Operating profits grew significantly faster, reaching $3.206 billion, up 17.6% from $2.949 billion a year earlier.

Digital Access Program grows 

During an April 26 conference call with analysts, UPS CEO Carol Tomé said the carrier’s Digital Access Program (DAP) grew by 500,000 customer accounts, more than three times the number of new accounts created in Q1, 2021.

Launched in 2019, DAP is a series of strategic agreements intended to integrate UPS services more closely with ecommerce platforms and retailers.

DAP, aimed primarily at small- and medium-sized businesses (SMBs), is now available in 27 countries. The program’s growth puts UPS on its way to reaching its goal of generating $2 billion in DAP-related revenue in 2022, Tomé said.

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Tomé said UPS also made two recent changes that helped it expand its SMB customer base. First, it streamlined the way smaller U.S. SMBs sign up with UPS. Such customers can get a contract that includes pricing after answering just three questions on UPS.com.

“This enables them to begin shipping in under two minutes, instead of our old process where they had to wait an average of 10 days to get started,” Tomé said.

And for larger SMBs, she said UPS moved from a slow manual pricing process to a new digital platform. UPS expects to deploy the new platform fully by the end of April.

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“For our customers, this means they no longer need to submit cumbersome sample data just to get a quote. For our salespeople, they can close deals on the spot, making them more efficient and freeing them up to spend more time selling,” Tomé said.

During the first quarter, she added that SMBs made up 28.4% of the carrier’s total U.S. shipping volume, up 140 basis points from 2021.

For the rest of 2022, UPS reaffirmed its previously stated financial targets:

  • Total revenue of about $102 billion.
  • An adjusted operating margin of approximately 13.7%.
  • An adjusted return on invested capital above 30%.
  • Capital expenditures of 5.4% of revenue, or roughly $5.5 billion.
  • Dividend payments, subject to board approval, of about $5.2 billion.

Volume lower than expected

Brian Newman, chief financial officer at UPS, said external factors created a harsh operating environment in Q1. Early in January, the omicron variant of the virus that causes COVID-19 drove down retail sales. Omicron subsided in early February, causing volumes to grow slightly, but that didn’t last long.

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“Then, late in the quarter, the combination of record-high inflation, a surge in energy prices, COVID-19 lockdowns in Asia and geopolitical uncertainty resulted in our consolidated volume growth rates turning negative,” Newman said.

He said the average daily volume in the U.S. was down 3% or 611,000 packages per day compared with Q1 2021. A 7.4% decrease in residential volume drove the decline. The decline in residential deliveries included a reduction in SurePost volume of about 312,000 packages per day.

SurePost is an economy service designed for small, lightweight business-to-consumer parcels. The service combines UPS ground trucks and hubs with the local delivery by the United States Postal Service.

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Newman added that stimulus checks to U.S. households in March 2021 boosted volumes “and contributed to difficult year-over-year comps in the first quarter of this year.”

For the quarter ended March 31, UPS reported:

  • U.S. revenue of $15.124 billion, up 8.0% from $14.010 billion a year earlier.
  • Total revenue of $24.378 billion, up 6.4% compared with $22.908 billion during the comparable quarter a year earlier.
  • An operating profit of $3.206 billion, up 17.6% from $2.949 billion a year earlier.
  • $4.480 billion in cash flows from operations.
  • A plan to double the amount allocated to share repurchases to $2 billion in 2022.

Percentage changes may not align exactly with dollar figures due to rounding.

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