01:05 PM EDT, 04/24/2024 (MT Newswires) -- United Parcel Service's ( UPS ) improving volume and better Q1 earnings before interest and taxes has boosted confidence for a 2Q ramp, UBS Securities said in a note emailed Wednesday.

"Going into UPS's [Q1] report, we believe investors had meaningful concern regarding the large 40% [year over year] decline in total EBIT," UBS said, adding that the upside in Q1 and improving domestic package volumes make the Q2 EBIT ramp more visible, supported by added cost reductions, normal seasonality, and slightly higher volumes in Q2. "We now model a step up in total company EBIT of $525 [million] in [Q2] vs [Q1]," it added.

"We believe UPS's ability to adjust cost in response to current volumes and their multiyear structural cost reductions are a key lever for margin improvement and EPS growth," UBS said. In Q1, UPS decreased domestic labor hours by 6.6% year-over-year, surpassing the 3.2% decline in volumes, showcasing its adaptability.

UBS views UPS as a "cost driven story". In Q1, UPS experienced a 10.8% year-over-year growth in Surepost volumes, which is a lower cost shipping solution by UBS, contributing about 1.5 percentage points to total US domestic volumes, UBS said. "We believe it is important for UPS to deliver on a transition from improvement in Domestic volumes being driven by Surepost to volume growth supported by stronger SMB and B2B volumes in 2H24," it added.

UBS has maintained its buy rating on UPS with a 12-month price target of $175.

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