Shares of United Parcel Service (UPS) have plummeted following the company's announcement of significant operational changes, including the drastic reduction of package deliveries for Amazon, its largest customer. The logistics giant confirmed it will be cutting package volumes from Amazon by more than 50%, sparking immediate concern among investors and sending its stock tumbling to $110.26, marking a 17.3% drop from its previous close of $133.78. This stock price reflects not only the recent market volatility but also figures within the company’s broader strategy for profitability.
According to UPS’s latest earnings report, the company generated $91.1 billion in revenue for 2024, which showed slight improvement but was overshadowed by disappointing future projections. UPS forecasts revenue of only $89 billion for 2025, falling short of analyst expectations of $95 billion, which has caused alarm over future earnings potential.
UPS President and CEO Carol Tomé provided rationale behind this strategic shift during the company’s earnings call, stating, “We are making strategic adjustments to focus on the most profitable parts of our business. While Amazon has been a valued partner, we believe this decision aligns with our long-term growth strategy.” This move to cut ties with Amazon correlates with the online retail giant’s increasing investment in its own logistics network. By ramping up its fulfillment centers and delivery capabilities, Amazon has pressured UPS to reconsider the profitability of its logistics partnership.
The fallout from this decision has been troubling for UPS as they aim to recalibrate their business model. Industry analysts and investors are weighing the consequences of losing such a significant client. Some see this as a positive long-term maneuver, asserting it could lead to improved margins and profitability over time. Yet others warn of potential adverse impacts from losing Amazon’s volume, which accounted for approximately 11.8% of UPS's revenue last year.
Investors saw the immediate effects of this decision reflected through UPS’s stock performance. Early trading showed UPS shares dropped 7%, marking one of the most significant single-day losses the company has experienced. If the stock fails to recover from this latest downturn, it could signify the largest one-day sell-off it has faced.
UPS’s recent decision sends ripples through the logistics industry, potentially impacting competitors like FedEx and regional carriers, who might capitalize on the reduced business volume at UPS. Comments from financial commentator Shay Boloor highlighted the growing pressure on UPS, stating, “By 2026, [UPS] will slash Amazon's package volume by 50 percent. Amazon isn't outsourcing—it's owning the supply chain. Speed, efficiency, and margins follow.” This sentiment reflects growing concern over UPS's ability to maintain its competitive edge amid changing delivery logistics.
Even with the turbulent times, UPS does maintain some financial strengths. The company has consistently upheld its standing as the largest courier service within the U.S., facilitating billions of packages annually. Despite current adversities, UPS holds onto its reputation entrenched within logistics and supply chain management.
Analysts remain divided on the new direction taken by UPS. Evercore ISI has increased its price target for UPS shares to $147, maintaining the rating for shares as “in line” with overall market expectations. Citi also retained its “Buy” rating with its price target set at $158. Meanwhile, Bernstein analysts increased their expectations and rated UPS shares “Outperform” with truly optimistic earnings forecasts.
Looking forward, UPS faces the challenge of offsetting losses from Amazon through strategic restructuring. The company mentioned plans for facility and workforce consolidations intended to yield approximately $1 billion in annualized savings as part of its transformation strategy. How UPS manages these changes will be pivotal for its financial performance moving forward.
For UPS investors, the upcoming weeks could be decisive. There’s the allure of potential short-term trades due to heightened volatility, but with enhanced risk from the uncertainty brought by losing Amazon. While traditional long-term investors may view this transition as part of UPS’s broader ambition to focus on margin improvement, risk-averse stakeholders might perceive this as significant worry signs, favoring investments elsewhere.
These are unsettling times for UPS, but the company’s readiness to embrace change and refocus on profitability suggests it might navigate this adversity. Will UPS’s stock manage to rebound from these recent setbacks, or are greater struggles on the horizon? The logistics industry watches with bated breath to see how UPS’s next moves will shape its future.