How Should Investors Approach UPS Stock Post Q2 Earnings Miss?

Core Insights - United Parcel Service (UPS) shares fell 10.57% to $90.84 following an earnings miss and a year-over-year revenue decline in Q2 2025 [1][2] - Although revenues of $21.2 billion exceeded expectations, they still represented a 2.7% decline year over year [3][10] - The company did not provide full-year guidance due to ongoing macroeconomic uncertainties [1] Financial Performance - Q2 2025 earnings per share were $1.55, missing the Zacks Consensus Estimate by a penny and declining 13.4% year over year [3][10] - Average daily volumes declined 3.8% year over year in the first half of 2025, attributed to weak consumer sentiment and tariff impacts [11] Market Position - Year-to-date, UPS shares have dropped 28%, underperforming the Zacks Transportation—Air Freight and Cargo industry's 16% decline [5][8] - Over the past year, UPS shares have decreased over 30%, while its industry and FedEx have seen declines of 21% and 22%, respectively [8] Challenges Facing UPS - The company is experiencing a demand slowdown due to declining shipping demand and lackluster online sales [11][12] - Concerns about dividend sustainability arise from an elevated payout ratio of 84%, with free cash flow barely covering dividend payments [13][15] Strategic Moves - UPS plans to reduce its workforce by 20,000, approximately 4% of its global workforce, and shut down 73 facilities to streamline operations [19][21] - The company has also agreed to cut Amazon volumes by more than 50% by June 2026, as Amazon was not considered its most profitable customer [21] Valuation - UPS is currently trading at a forward P/E of 11.99, lower than the industry average of 13.2 and FedEx [17] Investment Outlook - Despite attractive valuation and expansion efforts, near-term risks such as tariff uncertainties and declining earnings estimates suggest that buying UPS stock may be premature [19][22]