UPS profit lower than expected as US trade policy shifts
Shares in the world's largest parcel delivery firm fell more than 9% to $92.16 in early trading, after executives also said UPS will accelerate its plan to deliver fewer packages for Amazon.com (AMZN.O), opens new tab, its largest customer.
UPS and rival FedEx (FDX.N), opens new tab are seen as bellwethers for the health of the global economy as they serve clients across industries and geographies.
"Changes in trade policies are impacting global trade and demand. It will likely all settle down at some point, but for now, it is a very volatile environment," CEO Carol Tome said on the earnings call.
Tariffs on China and the elimination of duty-free treatment on purchases from China-linked e-retailers like Temu (PDD.O), opens new tab and Shein contributed to the 34.8% drop in average daily volume during May and June. The China to U.S. trade lane is UPS' most profitable.
Still-uncertain U.S. trade policy has frozen corporate decision making and driven consumer sentiment to new lows, hurting the small package delivery business that UPS dominates.
UPS is now accepting retailer plans for its peak winter holiday shipping season when its daily volumes can easily double. In those plans, retailers signal expectations for consumer spending that underpins the nation's economic activity.
Customers often submit preliminary peak season shipping plans by the end of August and final plans at the end of September, Tome said.
Tome expects retailers to delay preliminary plans until September, "which is an indication that they too are having difficulty in forecasting demand for the holiday selling season."
UPS reported an adjusted consolidated operating margin of 8.8% for the latest quarter, while that margin was 7% for its largest domestic segment - below the 10%-plus analysts and investors had come to expect.
The company did not provide closely watched revenue and margin forecasts, citing ongoing macroeconomic uncertainty. In January, UPS projected 2025 revenue of $89 billion.
In a hit to demand, the White House in May began collecting tariffs on shipments under $800 from China that were previously duty-free, though the "de minimis" levies were later reduced to 54% from 120% as part of a trade truce.
Analysts at J.P. Morgan have previously noted that negative impact from the removal of the de minimis exemption seems to impact UPS more than FedEx.
Atlanta-based UPS reported consolidated revenues of $21.2 billion, above Wall Street estimates of $20.86 billion, helped by strength in its international segment, as importers likely frontloaded finished goods ahead of expected tariff changes.
However, revenue in its U.S. segment fell to $14.08 billion from $14.20 billion, pressured by a sluggish recovery in retail sales and industrial activity.
Adjusted net income was $1.55 per share for the quarter ended June 30, below estimates of $1.56 per share, according to data compiled by LSEG.
UPS has been shuttering hundreds of facilities and slashing thousands of jobs as part of a sweeping overhaul, its largest ever, aimed at slashing $3.5 billion in costs in 2025.
In April, the company announced plans to cut 20,000 jobs tied to plans to shed half its shipping volume from Amazon.com.
In July UPS offered voluntary buyouts to its unionized full-time drivers for the first time. As many as 85% of UPS drivers are at the top end of the UPS pay scale, with 25 to 40 years of service, executives said.
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