UPS Innovating Through Downturn, Maintaining Margin and Revenue Targets

Wow, another action-packed UPS 2Q 2022 Earnings Call. First, I'll have to say that it's embarrassing and funny that "Better Not Bigger" is a differentiated business strategy, but it is -- in so many ways. Kudos to UPS for charting their own path.

Here are a few callouts:

* They are holding their full year revenue and profit forecasts.

* Second Half GDP forecasted low in US (IHS) to 1.4% growth.

* Average Daily Volume (ADV) declined 4%. BUT. (and this is the amazing operator part of this story)

* 2Q revenue up 5.7% y/y, profit up 9.3% y/y, margins up 40bps

(Anytime profit and revenue expands in the same quarter y/y, that is one sign of a good operator, period.)

* Half of average daily volume decline (2%) was planned by UPS, either formally or informally, and was due to a "few customers", and "majority is residential". I took this to mean, Amazon continues to bring more and more last-mile in-house. This is well-known on our part, it's not good business anyway.

* By end of year, Amazon will be less than 11% total revenue.

* $300M in cost savings targeted in 2H 2022, "total service plan" to reduce wait times and improve driver and operator efficiencies.

(10 min improvement in service time across network is worth $257M)

* $600M extra costs y/y in second-half due to expected teamsters+benefits+cost of living adjustments.

* Of top 20 customers in 2Q, 65% grew volume.

* Readers of mine know how much I like Target. Carol Tome' at UPS has become my second favorite listen. Another adult CEO in the industry with a specific, differentiated plan that can articulate the cost gains they are seeking, and the specific programs that will get them there. RARE.

* In their tech stack, they are working on a test with an order management system vendor who "runs most of retail" (i.e. Manhattan or IBM Sterling?) to help improve network density by consolidating more than 1 order on the same route, rather than releasing orders one at a time to the network. So smart. Why the hell do people not think of such things before.

* Finally, a body blow thrown at FedEx: "We already have an integrated network, our improvements are about running our network as it was designed." In reference to recent FedEx announcement to finally integrate its Air and Ground network. (After acquiring RPS in 1997!)