United Parcel Service (UPS 0.63%) has exciting long-term targets, but the near term isn't looking so bright. Investors are focused on what is right around the corner, sending UPS shares down nearly 8% as of 1:30 p.m. ET.
Speed bumps up ahead
Investors went into UPS' annual investor day with high hopes and the company delivered some eye-catching forecasts. The shipping giant upped its target for 2026 revenue to between $108 billion and $114 billion and said it expects an adjusted operating margin of 13% by then.
For comparison, the company generated $91 billion in revenue in 2023. The Wall Street consensus estimate for 2026 was $101 billion.
It has been a gloomy environment for shippers as large customers have scaled back inventories due to questions about the economy and the health of the consumer. UPS warned the current quarter will be the "toughest" of 2024, saying that profits will likely be down 40% year over year. The company has responded by seeking to aggressively cut costs.
"After coming off a difficult market in 2023, the small package industry is poised to return to growth in 2024 and beyond," CEO Carol Tomé said in a statement. "Over the next three years, we plan to make bold moves to create a growth flywheel in premium markets, while at the same time drive higher productivity and efficiency."
NYSE: UPS
Key Data Points
Is UPS a buy after its investor day forecasts?
Shares of UPS are down 22% over the past year and have fallen nearly 40% from their pandemic highs reached back when shipping was the only thing keeping the retail economy alive. Part of the drop is cyclical, but the stock has underperformed archrival FedEx by 22 percentage points so far in 2024 and by more than 50 percentage points over the past year.
FedEx shares have rebounded lately because management was able to reassure investors that its cost-cutting campaign was working. UPS, based on its commentary on the months to come, is still a "prove it" story for investors. There's great potential here, but management needs to demonstrate progress before the shares hit the fast lane.
