Where will United Parcel Service (UPS 2.77%) be in a year? It's a good question, and the answers to it reveal a lot about what the package delivery company has been through in the last few years and where it might be heading from here. As such, here's a look at prospects for UPS and its investors in the coming period.
UPS' fluctuating fortunes
To see the whole picture, you need to go back to the investor day presentation from March 2024. It included guidance for 2026 (which I will address shortly) and set the tone for what investors might expect in the coming years. For the sake of brevity, there were three key takeaways:
- A doubling down on growing in key, higher-margin markets like small and medium-sized businesses (SMB), and healthcare.
- The excess capacity in the U.S. small package delivery market (built up during the boom in demand from the lockdown periods) would start to reduce as demand improves and supply growth moderates.
- Management's investments in the "network of the future" would result in productivity enhancements that would lower the cost per package and enable facility consolidation.
Management also provided the following guidance for 2024 and 2026, and I've included the actual results for 2024 and the latest Wall Street analyst consensus for 2026. Clearly, some things have gone very wrong for the company in recent years.
|
UPS |
2024 Guidance at Investor Day |
2024 Actual |
2026 Guidance at Investor Day |
Wall Street Analyst Consensus |
|---|---|---|---|---|
|
Revenue (in billions) |
$92 to $94.5 |
$91.1 |
$108 to $114* |
$88 |
|
Consolidated Adjusted Operating Profit (in billions) |
$9.2 to $10 |
$8.9 |
$14.3 to $14.9* |
$8.7** |
Data source: UPS presentation, marketscreener.com, *upper end of range is due to the potential for inorganic growth, **Earnings before interest and taxation.
What went wrong for UPS in 2024
It didn't take long for things to deteriorate following the investor day in March 2024, with management cutting its full-year 2024 guidance to $93 billion (slightly below the midpoint of the previous range) and an implied adjusted operating profit of $8.74 billion on its second-quarter earnings call in July 2024.
Management attributed the decline to customers shifting toward value products and a surge in lower-value volumes from "new e-commerce entrants into the United States."
This was a potential red flag, as it appears to run contrary to UPS's operating strategy, which focuses on improving delivery volume, quality, and profitability rather than volume growth.
NYSE: UPS
Key Data Points
UPS moving into 2025
Fast-forward to the start of its financial 2025 year, and CFO Brian Dykes told investors that UPS would "double down on growing volume and revenue in the best parts of the market for us, including SMB, healthcare, and B2B." In 2025, it promptly informed investors that it would reduce its reliance on Amazon.com delivery volumes by 50% from the start of 2025 to the middle of 2026.
To put this into context, Amazon deliveries (which tend to be low margin) were responsible for 11.8% of revenue in 2024, or $10.75 billion. Assuming the volume reduction equates to a revenue reduction, UPS will lose a run rate of $5.9 billion in revenue by mid-2026.
That's fair enough, and it aligns with UPS's plan to improve profitability and delivery quality. Remember that UPS plans to cut $3.5 billion in expenses, a plan "aligned with our anticipated Amazon volume reduction in 2025," according to Dykes.
That was the good news, and it goes some way to explaining why 2026 revenues will fall far short of the guidance given in 2024.
Image source: Getty Images.
UPS through 2025
The bad news from 2025 is that the Trump tariffs have damaged its most profitable international trade route (China to the U.S.), and its key SMB market is weak, as many of them are struggling to deal with the uncertain tariff landscape.
To make matters worse, management continues to commit to paying $5.5 billion in dividends in 2025, despite spending $1 billion on buybacks in the first half and generating just $742 million in free cash flow during the same period, including a $745 million outflow in the second quarter.
Meanwhile, management has declined to update investors on its full-year 2025 guidance.
Where will UPS be in 2026?
UPS's core SMB market is deteriorating with the tariff environment, and ongoing trade conflicts aren't helping. Meanwhile, the reduction in excess capacity in the U.S. small package market is falling short of expectations. The Amazon volume reduction doesn't account for the considerable decrease in 2026 expectations originally laid out in 2024.
Image source: Getty Images.
Rubbing the crystal ball, one scenario sees UPS resetting investor expectations over guidance, while cutting the dividend and freeing up cash to invest further in healthcare businesses or accelerate its network technology plans. At which point the stock would become highly attractive.
