Higher costs and weak pricing caused United Parcel Service (UPS 5.50%) to miss expectations in the second quarter, and left analysts reconsidering the company's prospects for the quarters to come.
Shares of UPS were down 11% for the week as of midday Thursday, according to data provided by S&P Global Market Intelligence, as investors react to reset expectations.
Higher costs, weaker pricing
UPS earned $1.79 per share in the second quarter on sales of $21.8 billion, missing Wall Street's estimate for $1.99 per share on revenue of $22.2 billion. The transportation giant also revised its full-year revenue forecast to about $93 billion, from previous guidance of between $92 billion and $94.5 billion in sales.
The company is still in the process of resetting expectations after a big labor deal that was announced last year. UPS is also seeing continued weak pricing, which translated to domestic package margin performance that was about 130 basis points worse than what the company had forecast.
In the days following UPS' Tuesday report, about a dozen Wall Street analysts lowered their price targets, causing continued pressure on the shares.
Is UPS stock a buy following its earnings disappointment?
UPS is a confusing stock to look at right now. The company is working through higher costs while trying to rightsize different aspects of the business. It is also in the process of selling its Coyote Logistics operation to RXO, and announced a separate agreement to acquire Estafeta to boost its Mexican express delivery options.
Over time, UPS should recover. The company is an integral part of the U.S. supply chain and should benefit as large shipping customers get more clarity about the economy. But that will take time. For those thinking of buying into UPS after the decline, patience will be required.
