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Why Shares of UPS Are Falling Today

By Lou Whiteman - Apr 28, 2020 at 10:27AM

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COVID-19 weighs on first-quarter results and outlook.

What happened

Shares of United Parcel Service (UPS 1.34%) fell 5% on Tuesday morning after the shipping and transportation giant reported first-quarter results that came in below expectations and pulled full-year guidance. The COVID-19 pandemic is disrupting the business, and it's hard to say how long those disruptions will last.

So what

Before markets opened Tuesday, UPS reported first-quarter earnings of $1.15 per share in the quarter on revenue of $18.04 billion, compared to analyst expectations for $1.23 per share in earnings on revenue of $17.2 billion.

A UPS cargo jet on the tarmac.

Image source: United Parcel Service.

The company is seeing strong volumes thanks to the pandemic, which has disrupted supply chains and shifted the mix of products it is moving through its system. The business-to-consumer segment, which tends to be lower margin, is seeing a heavy influx of volume, impacting overall profitability.

Overall domestic shipping volumes climbed 8.5%, but revenue per piece was down by 1% due to the changing product mix. Revenue increased 9.3% year over year in UPS's domestic segment, while international volume was down 1.8% and supply chain revenue was down less than 1%.

Now what

The pandemic only worsened after the first quarter ended, and UPS is expected to face similar product mix challenges in the current quarter. Beyond the second quarter, there are a lot of unknowns, including when the pandemic will be contained and what shape the U.S. and global economies will be in once the health crisis is over.

UPS is taking no chances. The company suspended its full-year guidance, saying it is "unable to predict the extent of the business impact or the duration" of the pandemic. The company is also reducing full-year capital expenditures by about $1 billion and is suspending its share buybacks for the rest of the year.

"We will continue to adapt through this challenging period and prioritize investments and operational decisions that put UPS in the best financial position," CFO Brian Newman said in a statement. "We take a disciplined and balanced approach to capital allocation and are confident in our liquidity position including our commitments to capital management and dividends."

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United Parcel Service, Inc. Stock Quote
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