How Should Investors Approach UPS Stock Post Q2 Earnings Miss?

Shares of United Parcel Service UPS plunged 10.57% to close July 29’s trading session at $90.84. The double-digit decline followed the transportation giant’s earnings miss and year-over-year decline in the second quarter of 2025. Although revenues exceeded expectations, they declined year over year. Adding to the woes, the company refrained from providing full-year guidance for revenues or operating profit due to the ongoing macro uncertainty.

Following the substantial stock price decline on July 29, the question is whether investors should remain invested in UPS stock or book profits and exit. Let’s address this question by evaluating the company’s latest quarterly performance and long-term prospects in detail.

UPS’ Q2 Earnings Snapshot

UPS’ second-quarter 2025 earnings per share of $1.55 missed the Zacks Consensus Estimate by a penny and declined 13.4% year over year. Revenues of $21.2 billion surpassed the Zacks Consensus Estimate of $20.8 billion but decreased 2.7% year over year.

United Parcel Service  Price, Consensus and EPS Surprise

United Parcel Service, Inc. price-consensus-eps-surprise-chart | United Parcel Service, Inc. Quote

Results were hurt by sinking volumes. On the conference call, CEO Carol Tomé said U.S. consumer sentiment, which was near historic lows during the quarter, hurt the small package market. The CEO further said the ongoing tariff situation caused consumers to start trading down in certain categories. UPS expects capital expenditures for 2025 to be around $3.5 billion.

Is UPS’ Overall Share Performance Just as Disappointing?

The answer to the above question is, unfortunately, yes. Shares of United Parcel Service have plunged 28% year to date compared with its Zacks Transportation—Air Freight and Cargo industry’s 16% decline. Rival FedEx's FDX price performance is better than that of UPS.

YTD Price Comparison

Longer-term, over the past year, too, UPS shares have performed worse than its industry and FedEx. While UPS has plunged in excess of 30%, its industry and FedEx have declined 21% and 22%, respectively, in a year.

Factors Hurting UPS Stock

Demand Slowdown: A Grave Concern: Due to the decline in shipping demand, volumes are being hurt. Lackluster volumes have been hurting United Parcel Service’s results. The slowdown in online sales in the United States, apart from the softness of global manufacturing activity, has been hurting the demand scenario. Average daily volumes on a consolidated basis have declined 3.8% year over year in the first half of 2025.  

Economic Uncertainty & Tariff Concerns: Of late, U.S. markets have been characterized by a high degree of volatility amid uncertainty surrounding U.S. trade policy and growing anxiety about a slowing U.S. economy. Volatility is likely to persist in the U.S. stock market going forward due to uncertainty over the timing of the next interest rate cut, new tariffs and ongoing geopolitical tensions. 

UPS Hikes Dividend: But is it Sustainable? In February, UPS management announced a 0.6% hike in its quarterly dividend payout to $1.64 per share (annualized $6.56 per share). No doubt this represents UPS’ shareholder-friendly approach, but questions about the sustainability of its dividend arise. United Parcel Service’s elevated dividend payout ratio (the percentage of net income paid out as dividends) of 84% highlights the concern associated with its ability to maintain dividend payouts over the long term.

We remind investors that in the early 2020s, when UPS’ business was flourishing, driven by exponential e-commerce growth during the peak pandemic period, the company made huge dividend payments. Free cash flow has been on a decline since touching a high of $9 billion in 2022.

Currently, UPS' elevated dividend payout is hurting its operational flexibility, with free cash flow barely covering the dividend. At 2024-end, free cash flow was $6.3 billion, not much above its dividend payments of $5.4 billion. Dividend payments are expected to be roughly $5.5 billion. 

Unfavorable Earnings Estimates Movement: The Zacks Consensus Estimate for 2025 adjusted earnings for UPS is currently pegged at $7.03 per share, indicating an 8.9% year-over-year decline. The consensus mark for 2025 revenues suggests a 4.1% decline from 2024 actuals. The Zacks Consensus Estimate for 2025 earnings has been revised 0.7% downward over the past 60 days.

UPS’ Valuation: A Saving Grace

UPS is currently considered relatively undervalued, trading at a forward 12-month price to earnings (P/E) of 11.99X. This figure is lower than its industry average of 13.2X. It is also lower than that of FedEx. UPS currently has a Value Score of B.

UPS’ P/E F12M vs. Industry & FDX

Don’t Buy UPS Now: Near-Term Headwinds Are Hard to Ignore

Agreed that UPS’ valuation is attractive. Moreover, United Parcel Service’s expansion efforts look good. In a bid to expand its network, UPS acquired Estafeta, a Mexican express delivery company. The company’s cost containment efforts are also aimed at driving long-term growth. As part of this exercise, UPS is offering buyouts to delivery drivers for the first time in its 117-year history. United Parcel Service’s full-time drivers are eligible for this offer. The company aims to trim its workforce by 20,000 this year, representing approximately 4% of the global workforce, and shut 73 facilities to streamline operations and lower labor costs. Apart from the tariff-induced economic uncertainties, UPS’ decision to reduce business with its largest customer, Amazon AMZN, contributed to the decision to trim the workforce. Earlier in the year, UPS management reached an agreement in principle with Amazon to lower the latter’s volume by more than 50% by June 2026. According to Carol Tome, Amazon was not its most profitable customer.

However, near-term risks outweigh the positives. Tariff-related uncertainty, concerns related to dividend sustainability, and volume woes represent major headwinds. Declining earnings estimates do not help matters. Given these challenges, buying the stock, despite the significant price decline, seems premature now. We believe investors should steer clear of this stock, which currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here. 

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This article originally published on Zacks Investment Research (zacks.com).

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