United Parcel Service (UPS 0.48%) is one of the dominant names in shipping.
The company operates a sprawling network of planes, trucks, and distribution centers, shuffling e-commerce buys to their destinations and providing supply chain transportation. In 2024, UPS delivered 5.7 billion packages.
But for all its strengths UPS has failed to deliver for investors of late: The stock is down more than 50% since the beginning of 2022. Here's why UPS has underperformed, and why it can be a long-term winner from here.
Image source: United Parcel Service.
Great company, bad cycle
Shipping is a great business when demand is strong, but there is little UPS or any competitor can do to boost revenue when demand for its services is weak. During the pandemic, when consumers couldn't go to the mall, the need for UPS' services skyrocketed.
Investors were ready for a drop-off as stores reopened, but in the years that have followed a combination of rising inflation and concerns about the health of the economy have caused UPS' corporate customers to cut back on restocking inventories. The introduction of tariffs has caused more confusion, slowing the velocity of supply chains and further cutting into demand.
UPS is also going through internal changes. The company relied on Amazon for about 11% of its $91.1 billion in 2024 revenue, but has said that business tends to be low-margin. In early 2025, UPS announced it intends to cut Amazon shipping volumes in half by the end of next year.While that might help long-term profitability, it has negatively impacted the company's near-term growth trajectory.
In its most recent quarter, UPS reported anemic 1.4% year-over-year revenue growth on a 3% decline in average daily package volume. The company guided for little to no growth in 2025.
Making the best of a bad situation
UPS is not sitting still waiting for the economy to rebound. The company is on track to take out about $3.5 billion in annual costs by year-end, including consolidating its distribution network and cutting about 20,000 jobs. Most of those gains will show up in the second half of the year.
The company hopes to offset the lost Amazon business with higher-margin specialty deliveries, including healthcare and other temperature-sensitive products that need customized trucks and delivery centers. In April, UPS said it would spend $1.6 billion to acquire Andlauer Healthcare Group to expand its Canadian healthcare delivery footprint.
Will UPS deliver for shareholders?
Cyclical stocks like UPS can be frustrating for investors because there is little you can do other than ride out the cycle. In this case, the patience is warranted.
UPS has been around for more than 100 years, meaning it has a track record of weathering shipping downturns and coming out stronger. Though the restructuring will take time and come at the expense of near-term growth, UPS' transition away from Amazon and toward higher-margin transport should benefit the company over time.
Fortunately, investors can get paid to be patient. UPS has either maintained or increased its dividend in every year since going public in 1999, and at current prices it currently offers a yield of more than 6%.
UPS is well positioned to capitalize when the economy recovers. Buying the stock today is a bet that the U.S. economy will rebound and improve over time. When it does, look for UPS to accelerate.
