UPS Analysts Cut Outlook After Parcel Giant Misses Revenue Estimate: 'Market Still In Recovery Mode'

Analysts have softened their outlook on United Parcel Service UPS as it missed revenue estimates and lowered it revenue guidance for this year.

UPS has lowered its revenue guidance for full-year revenue from between $92 billion to $94.5 billion, to $93 billion after posting lower-than-expected revenue for the second quarter.

UPS second-quarter revenue declined 1.1% year-over-year to $21.82 billion, missing the consensus of $22.183 billion. Adjusted EPS was $1.79, down 29.5% from a year ago and missing consensus of $1.99.

U.S. Domestic Segment revenue fell 1.9% YoY to $14.12 billion, reflecting a 2.6% decrease in revenue per piece due to changes in product mix. The adjusted operating margin stood at 7.1%.

International Segment revenue decreased by 1% YoY to $4.37 billion, owing to a 2.9% decrease in average daily volume. The adjusted operating margin was 18.9%.

Supply Chain Solutions Segment revenue increased by 2.6% to $3.33 billion, reflecting growth in logistics, including healthcare. The adjusted operating margin was 7.3%.

Analyst Reactions

BMO Capital Markets lowered its price target on UPS from $169 to $155 and its adjusted diluted earnings per share (EPS) estimate for this year’s third quarter from $2.11 to $1.67. It also reduced EPS estimates for 2024 from $8.32 to $7.49 and from $10 to $8.92 for 2025.

BMO maintained a Market Perform rating on the stock.

“The results and outlook reflect more muted than anticipated demand environment, in particular in the U.S. Domestic segment, amid continued tough macro conditions and persistent inflationary cost pressures, particularly following the implementation of the labor agreement with the Teamsters in 2023,” BMO analyst Fadi Chamoun said in a note.

“This backdrop has negative implications for operating leverage both in the quarter and in the revised F2024 guidance,” the analyst added.

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Stifel lowered its UPS price target from $170 to $151 and its net EPS for 2024 from $8.42 to $7.60 and from $10 to $9.45 for 2025. It also reduced 2024 revenue estimate from $99.35 billion to $92.25 billion and its 2025 revenue estimate from $99.7 billion to $98.39 billion.

“We knew that this quarter wouldn’t be a stellar one, with a market still in recovery mode and front-loaded drag from last year’s Teamsters contract,” Stifel analyst J. Bruce Chan said in a note.

“But even as volume growth returned in Domestic, Ground yields were materially below our expectations. The primary culprit was negative mix from customer service trade down and from volume surge from low-yield Chinese e-commerce retailers.”

Oppenheimer lowered its price target from $157 to $140 and adjusted EPS estimates for 2024 from $8.25 to $7.56 and from $9.30 to $8.76 for 2025.

“UPS is susceptible to economic slowdowns in all of its markets, as delivery of goods is correlated with business and consumer activity,” Oppenheimer analyat Scott Schneeberger wrote in a note, commenting on key risks to UPS’ price target.

“Any limitation on global trade could also represent a headwind. UPS faces a handful of solid competitors in most of its markets, although its size, service capabilities, and value proposition have afforded it continued rate increases.”

He also said that UPS faces renegotiation risks in dealing with multiple employee unions, as well as other concerns related to regulatory matters, pension and medical benefit expenses.

Price Action: Shares of UPS were up 0.67% to $128.53 at the time of publication Wednesday.

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