UPS (UPS) stock is plunging Thursday after the international shipping company beat profit expectations for its fourth quarter but provided a weak outlook on 2025 and announced that it plans to cut volume for its largest customer by more than 50%.
Investors have long wondered about the potential impact on UPS' business as Amazon.com (AMZN) assumed responsibility for an increasing share of its own delivery volume.
That future is now, and UPS appears to be taking proactive steps to optimize its own operations. A period of transition is reflected in 2025 guidance and the price of UPS stock too.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Management forecast revenue of approximately $89 billion and an operating profit of $9.6 billion this year, well below analysts' expectations of $95 billion and $10.1 billion.
UPS said it will lower shipping volumes for Amazon, its largest customer, by more than 50% by the second half of 2026. Amazon accounted for 11.8% of total revenue at UPS in 2023.
"We are making business and operational changes that, along with the foundational changes we've already made, will put us further down the path to becoming a more profitable, agile and differentiated UPS that is growing in the best parts of the market," CEO Carol Tomé said in a statement.
Indeed, UPS expects to realize annual savings of approximately $1 billion through efficiency initiatives related to its transition.
In the three months ending December 31, UPS reported a 1.5% year over year increase in revenue to $25.3 billion. Earnings per share (EPS) rose 11.3% from the year-ago period to $2.75.
Results were mixed compared with analysts' expectations. Wall Street was anticipating revenue of $25.4 billion and earnings of $2.53 per share, according to Yahoo Finance.
Is UPS stock a buy, sell or hold?
Despite the sharp sell-off, Wall Street remains bullish on the shipping giant. UPS stock was down 16% in 2024 vs a gain of 25% for the S&P 500, which suggests the market understood the business risk management is addressing with its recent guidance.
According to S&P Global Market Intelligence, the average analyst target price for UPS stock is $148.91, representing implied upside of more than 35% from Thursday's intraday lows.
Analysts will likely revise their ratings and price targets following the Amazon news. But, right now, the consensus recommendation is a Buy.
Financial services firm BofA Securities is one of those outfits with a Buy rating on UPS stock. And analyst Ken Hoexter anticipated the Amazon news.
"We are raising our rating on UPS' shares to Buy from Neutral as we see a potential end to the freight recession in 2025, as well as benefits from the company's dynamic pricing model and cost initiatives," Hoexter said in a January 16 note.
"We believe these gains will work to offset potential volume losses as it insources the remainder of its SurePost last mile volumes from the US Postal Service, continued Amazon revenue glide down, and its high-cost Teamster labor contract."
Hoexter has a 12-month price target of $150 for UPS stock.
Editor's note: This article originally stated that Amazon would be cutting volume by 50%, but the decision was made by UPS. "Due to their operational needs, UPS requested a reduction in volume and we certainly respect their decision. We'll continue to partner with them and many other carriers to serve our customers," said Kelly Nantel, a spokesperson for Amazon, in an emailed statement. We apologize for the error.
Related Content
-
Dealmaking Drives HEICO Stock's 100,000% ReturnHEICO has been skillful with mergers and acquisitions over the years and this has resulted in a 100,000% share-price return.
-
Caregiving Is a Stealth Retirement Expense for Women: I Should KnowEldercare takes a toll on everyone, but women's careers tend to suffer more — with dire consequences over the long term.
-
Dealmaking Drives HEICO Stock's 100,000% Return
HEICO has been skillful with mergers and acquisitions over the years and this has resulted in a 100,000% share-price return.
-
The Golden Window: A Top Tax Strategy for the Right RetireesMaximize your retirement savings and minimize your tax burdens by taking advantage of the strategic 'Golden Window' before Social Security and RMDs begin.
-
Roth or Traditional? Seven Considerations for High EarnersRetirement savings and taxes are a minefield — and the higher your income, the more complicated the options. Use these tips to find your way forward.
-
The Social Security Fairness Act: Good News for Retirees?Millions will be affected by new rules that boost Social Security benefits. But if you qualify, there may be knock-on effects on your retirement cash flow.
-
Stock Market Today: Stocks Recover From Trump-Zelensky SlideReports of a combative meeting between the two leaders sent stocks temporarily lower Friday afternoon.
-
Want to Hire a Financial Planning Firm? Five Questions to AskThe key to finding a financial planner who will do great work for you and your family is knowing what to look for during your search.
-
Five Top Insurance Scams to Watch Out ForScammers are always looking to take advantage of unsuspecting people, and insurance issues are prime targets. Here's how to avoid falling victim.
-
Stock Market Today: Mixed Messages Muddle MarketsStocks cruised into pre-market action on encouraging news for the AI revolution but stumbled on yet another policy disturbance.
