January 30, 2025
(Bloomberg) -- United Parcel Service Inc. shares plunged after the company projected annual revenue well below expectations, telling investors that a long-awaited rebound in demand for its parcel services won’t arrive this year and prompting it to slash its low-margin business with Amazon.com Inc.
UPS’ core parcel operations have endured a long-lasting demand trough as package volumes have fallen from a pandemic-era peak. Some customers also have traded down from premium to economy services, cutting into the Atlanta-based company’s earnings. It aims to adapt by shipping fewer, higher-margin packages and cutting back on less profitable deliveries.
“Amazon is our largest customer, but it’s not our most profitable customer,” Chief Executive Officer Carol Tomé told investors on a conference call.
The courier forecast revenue of $89 billion for 2025, compared with the average analyst expectation of $94.9 billion. It said Thursday that 2024 revenue came in at $91.1 billion, of which business with Amazon made up 11.8% of that total.
Shares of UPS fell 15% to $114.01 as of 9:32 in New York, the steepest intraday drop since Oct. of 2008. That followed a 20% decline in 2024, which marked a third year of declines. Amazon was little changed at $237.50.
Adjusted fourth-quarter earnings came to $2.75 a share, above average analyst projections for $2.53 per share, according to estimates compiled by Bloomberg. The beat was driven by higher demand and prices during the end-of-year holiday shipping rush.
The company said it had reached an agreement with Amazon to lower volumes by more than 50% by the second half of 2026. That came as a surprise, said Daniel Imbro, an analyst at Stephens Inc.
“This does fit with their strategy of better, not bigger,” Imbro said by email. “But it appears to be a headwind to earnings, given the lack of underlying revenue growth.
UPS has tried to counteract the slowdown in shipping volumes by cutting costs where it can. The company is in the process of shuttering some facilities around the US and refurbishing others to make way for automation that could help save on labor costs in the future. In 2024, UPS permanently closed 11 facilities and completed 49 operational closures, the company said in a presentation.
Chief Financial Officer Brian Dykes said on the conference call that UPS Will close up to 10% of buildings, reduce its fleet size and trim its labor force in the US by an unspecified number.
UPS is also planning a multi-year redesign of its network to go after $1 billion in savings. A costly contract with the Teamsters union has led the company to look for ways to offset that burden, partly by winning back customers who fled to rival carriers amid rocky labor negotiations in 2023.
The company has aggressively raised prices and implemented surcharges. Simultaneously, it’s going after higher-margin business by expanding its health-care vertical and aiming for $20 billion in revenue in the segment by 2026.
The low demand for parcel shipping remains a black cloud.
“It’s hard to glean what’s actually happened from an efficiency standpoint without the volumes really being there, because it’s just this perpetual waiting game,” Conor Cunningham, an analyst at Melius Research, said in an interview. “I feel like I’ve been writing the same note. It’s just been multiple years of like, ‘When is this going to end?’”
(Updates from third paragraph with CEO comments; Adds opening shares.)
