Is There Hope Left for UPS Investors?

Core Viewpoint - UPS stock has experienced a significant decline, falling over 30% in the year and more than 60% from its pandemic-era highs, raising concerns among investors about the company's future performance [2][4]. Company Performance - UPS's stock has dropped approximately 31% since the beginning of the year and over 60% from early 2022 pandemic highs [2]. - The company has faced challenges such as a decrease in package deliveries and a strategic decision to prune lower-margin business segments [4][5]. - Average daily volume in the U.S. fell by over 7% in the second quarter, with UPS's operating margin at 7%, a stark contrast to the double-digit margins seen during the pandemic [6]. Strategic Decisions - UPS terminated its acquisition of Mexican company Estafeta, which was aimed at strengthening its presence in Mexico, leading to a downgrade in its price target by an analyst [3]. - The company plans to cut Amazon package volume by approximately 50% by June 2026 due to low margins associated with Amazon deliveries, which accounted for about 11.8% of UPS's revenue in 2024 [7]. Cost Management Initiatives - UPS is implementing a $3.5 billion cost-reduction plan, which includes closing numerous facilities and reducing its workforce by about 20,000 jobs, aimed at improving margins and restoring shareholder confidence [10]. - The consolidated operating margin improved from 7.7% to 8.6% in the second quarter, with a projection of 9% for the next quarter [10]. Future Outlook - Despite current setbacks, UPS maintains a strong competitive position with one of the densest global delivery networks, delivering an average of 22.4 million packages per day [8]. - The company is focusing on replacing lower-margin Amazon volume with higher-margin segments such as healthcare and small-business freight, which are expected to provide more stability in earnings [11]. - There is potential for UPS to recover in the long term, although the path to stronger earnings may involve several more challenging quarters [12].