UPS Misses Revenue Estimates but Exceeds Earnings Projections

UPS recently released its Q4 results, reporting revenues below expectations despite earnings surpassing projections. With a bleak outlook, including significant volume cuts with Amazon, investor response has been negative, leading to a sharp stock decline.

Date: 03-02-2025

AI Rating: 5

Financial Performance Overview

UPS's revenue for Q4 was recorded at $25.3 billion, which represents an increase of 1.5% year-on-year, though it fell short of analysts' $25.4 billion estimate. On the earnings front, UPS's adjusted EPS was $2.75, outperforming the expected $2.53. The mixed results indicate a potential struggle for consistent revenue growth.

Projected Challenges

Notably, UPS plans to significantly reduce its shipping volumes with Amazon by more than 50% by the second half of 2026. This information is crucial as it highlights a potential long-term impact on UPS's revenue stream, causing concern among investors and leading to a 14% drop in stock price upon announcement.

Revenue Streams

While the company experienced a decline in its Supply Chain Solutions segment sales (down 9.1%), its U.S. Domestic Package sales inched up by 2.2% and international sales climbed 6.9%. However, the average daily package volume for U.S. domestic shipments fell by 0.3%, which may suggest a weakening demand domestically.

Profitability Metrics

Despite the revenue miss, UPS managed to achieve an adjusted operating margin of 12.3%. The forecast for the operating margin indicates a potential growth to 10.8% in 2025, even as sales are projected at $89 billion, substantially lower than the consensus estimate of $95 billion.

Stock Performance

As of late January 2025, UPS stock has dropped 11% since the start of the year and has underperformed compared to the S&P 500 index, which saw a 27% increase. Investors might find UPS stock's current trading at under 15x trailing earnings attractive compared to its previous average P/E of 17x, hinting at a perceived undervaluation.

In summary, despite UPS's better-than-expected earnings, the combination of a revenue miss, cautious outlook, and changes in shipping arrangements with key customers like Amazon raise questions about its short-term stock performance. Investors may need to weigh the potential for future profitability gains against these immediate challenges.

Stocks: UPS