Shares in UPS (UPS 0.63%) fell by 12.8% in the first quarter of 2025, according to data provided by S&P Global Market Intelligence. The decline comes down to a poorly received fourth-quarter earnings report and mounting evidence of a slowdown in its end markets that could pressure its first-quarter earnings.
UPS in the first quarter of 2025
The fourth-quarter numbers didn't surprise investors as much as UPS' announcement that it would reduce Amazon delivery volume by 50% by the second half of 2026. This is a sizable task given that Amazon deliveries represented 11.8% of UPS' total company revenue in 2024.
NYSE: UPS
Key Data Points
It's also a task that makes perfect sense to UPS' business strategy. Amazon deliveries tend to be low-margin or even loss-making, as they often are inefficiently packaged and are business-to-consumer (B2C) deliveries that can go to residential addresses that are hard to find or difficult to deliver to.
UPS management is on a drive to focus the business on targeted and higher-margin deliveries, such as in the small and medium-sized business (SMB) and healthcare sectors. Reducing Amazon volume makes perfect sense and will allow management to repurpose its network for higher-margin deliveries. Indeed, management announced it was reconfiguring its network, aiming to cut costs by $1 billion.
That said, finessing a reduction in Amazon volumes won't be easy, and investors have concerns given management's inability to meet its guidance in recent years.
Image source: Getty Images.
A weakening economy
Unfortunately, the Trump administration's tariff actions are creating uncertainty in the economy, and that's spilling over into slowing growth. Indeed, UPS rival FedEx released its third-quarter earnings in March. It promptly lowered its full-year 2025 revenue and earnings guidance due to weakness in the industrial economy weighing on business-to-business (B2B) deliveries. UPS stock sold off in sympathy.
What it means for investors
UPS can ill afford any sustained slowdown in its end markets. Its current free-cash-flow guidance of $5.7 billion doesn't cover its capital return plans of $5.5 billion in dividends and $1 billion worth of stock buybacks in 2025. So any shortfall could pressure those plans. In addition, if the small-package delivery market weakens simultaneously as UPS tries to reduce Amazon volumes, it may disrupt operations and cloud progress on lowering Amazon volumes. Unfortunately, risk is rising for UPS, and its upcoming first-quarter earnings will be analyzed closely.
