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The Stock of Ups Sinks After Another Revenue Miss and a Downbeat Outlook

January 30, 2024
minute read

United Parcel Service Inc. encountered a significant downturn in its stock value on Tuesday, following another instance of falling short of quarterly revenue expectations. Despite exceeding fourth-quarter profit forecasts for the 15th consecutive quarter, the package delivery giant presented a gloomy outlook and revealed plans to implement job cuts as a cost-cutting measure.

In the early hours of trading, UPS' stock plummeted by 7%, positioning itself for the most substantial single-day loss since a 10% decline on April 25, 2023. This decline, amounting to $11.11, exerted downward pressure on the Dow Jones Transportation Average, which shed 225 points, or 1.4%.

While UPS did bolster its dividend by a penny per share and reported a recovery of over half of the volume lost during labor negotiations, Chief Executive Carol Tomé outlined two decisive actions during the post-earnings conference call to streamline the company's operations and prioritize key growth drivers.

Tomé explained that the first move involves aligning resources to core objectives, resulting in a reduction of approximately 12,000 positions and a targeted cost reduction of around $1 billion for the year. Additionally, UPS will explore strategic alternatives for its truckload brokerage business, Coyote, citing its high cyclical nature and substantial earnings volatility.

Reflecting on the challenges faced in 2023, Tomé acknowledged it as a unique and difficult year, attributing some of the performance issues to the economic environment and disruptions associated with labor contract negotiations.

Looking forward to 2024, UPS anticipates revenue in the range of $92 billion to $94.5 billion, falling short of the FactSet consensus of $95.51 billion. The adjusted operating margin is expected to decline to 10% to 10.6%, down from 10.9% in 2023.

For the fourth quarter, net income witnessed a significant drop to $1.61 billion, or $1.87 per share, compared to $3.45 billion, or $3.96 per share, in the corresponding period of the previous year. However, adjusted earnings per share of $2.47 exceeded the FactSet consensus of $2.46. Revenue experienced a 7.8% decrease to $24.92 billion, missing the FactSet consensus of $25.40 billion. This marked the sixth consecutive quarter of revenue falling short of forecasts.

Examining UPS's business segments, U.S. domestic package revenue declined 7.3% to $16.92 billion, below the FactSet consensus of $17.39 billion, while international package revenue dropped 6.9% to $4.61 billion, missing expectations of $4.64 billion. However, supply-chain solutions revenue dropped 11.4% to $3.396 billion but surpassed the FactSet consensus of $3.388 billion.

In a bid to reassure investors, UPS raised its quarterly dividend to $1.63 per share, payable on March 8 to shareholders of record on Feb. 20. The new annual dividend rate implies a yield of 4.43%, more than three times the implied dividend yield for the S&P 500 index of 1.44%.

Despite the recent challenges, UPS's stock has gained 5.9% over the past three months. In comparison, the Dow transports have rallied 13.6%, and the Dow Jones Industrial Average has advanced 16.3%. The market will closely watch UPS's strategic moves and operational adjustments as it navigates the complexities of the package delivery landscape.

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Adan Harris
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