Shares in logistics giant United Parcel Service (UPS) crashed over 7% today after continued tariff uncertainty led to it ditching annual profit and sales forecasts.
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In its Q2 report, UPS posted adjusted earnings per share of $1.55, down on analyst estimates of $1.57. Although revenues of $21.2 billion were lower than the $21.8 billion achieved last year, it beat forecasts of $20.8 billion.
Biggest Drag
However, the biggest drag on investor confidence was its declaration that due to “current macro-economic uncertainty,” it would not be able to provide specific revenue or operating profit guidance for the full year.
Chief executive Carol Tomé said the company was experiencing “a dynamic and evolving trade environment,” with mixed results across its business segments. This is likely in reference to President Trump’s trade tariff policies, which have slapped huge levies on countries importing goods into the U.S. It has been particularly vulnerable to new ‘de-minimis’ tariffs on low-cost shipments from China.
Even those nations like the U.K., or blocs like the EU which have completed trade deals with the U.S. are having to cope with levies much higher than before Trump came to power for the second time in January.
As can be seen below, macro uncertainty is a key risk for the business.
UPS said its U.S. domestic business, its largest division, saw revenue decline 0.8% to $14.1 billion compared to the same period last year. This was mainly down to an expected drop in volume, though it was partially offset by increases in air cargo and revenue per piece. Operating margin for the segment was 6.5%, or 7.0% on an adjusted basis.
“Our second quarter results reflect both the complexity of the landscape and the strength of our execution,” said Tomé. “We are making meaningful progress on our strategic initiatives, and we’re confident these actions are positioning the company for stronger long-term financial performance and enhanced competitive advantage.”
Cost Cutting
The International segment, despite the new tariff rules, was a bright spot with revenue increasing 2.6% to $4.5 billion, driven by a 3.9% rise in average daily volume. However, operating margin declined to 15.0% from 16.4% in the year-ago quarter.
Supply Chain Solutions experienced the steepest revenue decline, falling 18.3% to $2.7 billion, primarily due to selling its Coyote Logistics business in the third quarter of 2024.
UPS maintained its full-year outlook for capital expenditures of approximately $3.5 billion and confirmed it expects to achieve $3.5 billion in expense reductions through its network reconfiguration strategy.
The company plans to shed 20,000 positions and close 73 facilities as part of the cost-cutting move.
Earlier this month, the company announced the opening of a voluntary driver buyout program that would pay $1,800 per year that the employee has worked for UPS, with a minimum of $10,000, in addition to any earned retirement benefits.
A boost to its ailing share price would also be welcome.
Is UPS a Good Stock to Buy Now?
On TipRanks, UPS has a Moderate Buy consensus based on 9 Buy, 8 Hold and 1 Sell ratings. Its highest price target is $133. UPS stock’s consensus price target is $112.06, implying a 19.71% upside.
