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 its largest customer will be cutting its volume 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.
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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 shipping volumes from Amazon, its largest customer, will decline 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.
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