Shares in UPS (UPS +1.44%) declined by 16.8% this week as of Thursday afternoon. The fall comes after the release of disappointing second-quarter earnings on Tuesday. Its earnings missed estimates and prompted a slew of cuts in price targets in the following days.
What went wrong for UPS
While revenue was in line with management's guidance in April, profit margin was lower than management had estimated, and therefore so were its earnings.
It gets worse: Management declined to update its full-year guidance because the uncertainty in its end markets was creating a range of scenarios wide enough "to drive one of our 18-wheelers through," according to CEO Carol Tomé on the earnings call.
NYSE: UPS
Key Data Points
The uncertainty is largely down to the tariff environment and the impact it's having on some of the company's most profitable revenue streams, including the China-U.S. trade lane, and its small and medium-size business (SMB) customers in the U.S. The latter are struggling to adapt and mitigate the effects of the changing tariff environment, particularly when compared with large enterprises.
Where next for UPS?
Tomé had some good news for income-seeking investors: She strongly confirmed UPS will maintain its dividend. Still, with $1 billion already spent on share buybacks in 2025 (almost certainly at a higher price than when you read this article), $5.5 billion committed to paying its hefty dividend, and just $3.7 billion in trailing-12-month free cash flow, the debate over its dividend won't go away anytime soon.
Image source: Getty Images.
It's going to be a challenging year for the company, but its long-term strategic planning (focusing on SMBs and healthcare to raise margins) makes sense, and investors will hope UPS receives some help from its end markets in due course.
