UPS Faces an Identity Crisis

Core Viewpoint - The company's "better not bigger" strategy, which focuses on optimizing existing networks and targeting profitable growth opportunities, is being challenged by difficult end-market conditions and excess industry capacity [1][8]. Group 1: Strategy and Market Position - The "better not bigger" approach was well-aligned with the pandemic-driven surge in e-commerce, allowing the company to focus on small and medium-sized businesses (SMBs) and healthcare, while reducing reliance on less profitable Amazon deliveries [2][4]. - The share of revenue from Amazon decreased from 13.3% in 2020 to approximately 11.5% in the latest quarter, indicating a strategic shift towards more profitable segments [2]. - The company experienced a spike in profitability during the pandemic as it became more selective in its deliveries, leading to soaring earnings and strong cash flow growth [3]. Group 2: Recent Performance and Challenges - Revenue growth began to decline in 2023 due to a significant slowdown in delivery volumes and an inability to increase revenue per piece, resulting in a challenging environment for the company [5][8]. - The industry faced a shift from a 6 million-package shortfall to a 12 million-package capacity surplus, pressuring both volume growth and revenue-per-piece growth [5][8]. - The second-quarter earnings report led management to lower full-year earnings guidance, adjusting operating margin expectations from 10%-10.6% to 9.4%, although revenue guidance remained within the original range of $92 billion to $94.5 billion [7]. Group 3: Future Outlook - The company is adapting its strategy to "better and bolder," but the current excess capacity in the industry is likely to hinder near-term earnings prospects [8]. - There is potential for longer-term opportunities as industry volumes improve, which could create a better pricing environment and allow the company to be more selective in its deliveries [8].