United Parcel Service (UPS 0.95%) beat expectations for the fourth quarter, but the company's forecast for 2025 was well short of expectations, in part because of a high-profile break with partner Amazon (AMZN +2.17%).
Investors seemingly were caught off guard, sending UPS shares down 16% as of 1 p.m. ET Thursday.
Margins over volume ... eventually
UPS earned $2.75 per share in the fourth quarter on revenue of $25.3 billion, compared to Wall Street estimates for $2.53 per share in earnings on sales of $25.4 billion. But the company said it expects full-year 2025 revenue of $89 billion, significantly below the $95 billion consensus estimate.
The shortfall is in part a reflection of a still-sluggish transportation market, but it also has to do with changes that UPS is making to boost long-term profitability. The company is bringing in-house its SurePost partnership with the Postal Service, which should help drive profitability, and it is reconfiguring its U.S. network.
UPS also said it has reached an agreement in principle with Amazon, its largest customer, to lower Amazon volume by more than 50% by the second half of 2026.
NYSE: UPS
Key Data Points
Is now the time to buy UPS stock?
As CEO Carol Tomé noted on the post-earnings call with investors, Amazon is UPS' largest customer but not the company's most profitable customer. UPS is hoping to swap lower volumes for higher margins over time, but the immediate impact will be a significant headwind on growth.
Amazon accounted for nearly 12% of UPS' $91.1 billion in 2024 revenue.
UPS shares have now lost about half their value since the pandemic era, when shipment volumes went through the roof. The issue is that there are few near-term catalysts to turn things around. Patient investors buying in now will likely be rewarded eventually, but it will likely take a long time for the stock to bounce back.
Today the company announced the following strategic actions: First, it has reached an agreement in principle with its largest customer to lower its volume by more than 50% by the second half of 2026; second, effective Jan. 1, 2025, the company had in-sourced 100% of its UPS SurePost partnership; and third, in connection with these efforts, the company is reconfiguring its U.S. network, and launching multiyear efficiency initiatives to drive approximately $1 billion in savings through an end-to-end process redesign.
