Return to Sender: UPS Shares Take 13% Tumble on Freight Recession Fears

UPS is on track to make history, but not the kind that earns a statue in the hall of fame. Instead of the standing ovation they hoped for after their earnings announcement, they got booed off the stage. Now, everyone's favorite delivery company is facing its worst day ever, with shares down over 13%. How did things go so wrong?

CEO Carol Tomé, probably wishing she could hide under her desk with a tub of ice cream, explained that their revenue fell short because they didn't ship as many packages as expected. 

So, UPS is trimming its 2024 revenue forecast to about $93 billion from the previously optimistic $94.5 billion. They're also tightening their belt by cutting capital spending from $4.5 billion to $4 billion.

Meanwhile, UPS is shaking things up by selling its trucking business, Coyote Logistics, to RXO, Inc. This deal should wrap up by the end of the year and free up some cash for a $500 million share buyback. News also recently broke that they’re planning to buy Mexican express delivery company Estafeta, aiming to close that deal by year-end too.

For the quarter, UPS reported earnings per share of $1.79, which is a bit like finding a five-dollar bill when you needed a twenty. They were aiming for $1.99. Their revenue was $21.8 billion, missing the expected $22.18 billion. Net income fell too, dropping to $1.41 billion from $2.08 billion last year.

Operating profit also went south, landing at $1.94 billion, down from $2.78 billion a year earlier. Tomé called this quarter a turning point, with the first volume growth in the U.S. in nine quarters. But with revenue slipping from $22.06 billion to $21.82 billion, it seems more like they’re turning into a headwind. But still, doesn't a 13% drop seem kind of dramatic?

The shipping sector is facing weak demand and soft pricing, and some are calling it a global freight recession. Investors were crossing their fingers for better news from UPS to indicate demand was picking up. While UPS saw some bright spots in e-commerce, the overall picture is still a bit foggy.

UPS recently landed a big fish by securing an air cargo contract with the U.S. Postal Service, taking over from FedEx starting October 1. This deal is huge, as it brought in $1.75 billion for FedEx last fiscal year. 

Despite all the turbulence, UPS is restarting its share-repurchase program, planning to buy $1 billion in shares annually and $500 million in 2024. With the stock trading -20% year to date, maybe this will give them a good nudge to stop throwing my packages onto my neighbors front porch.

Stock.News does not have positions in companies mentioned.