This is what UPS’s commemorative news means to investors

ups' (NYSE:UPS) The most recent fourth-quarter earnings report is huge. The figures from the last quarter of 2024 are not many, but management outlines its strategic changes to the business. The market doesn't like updates very much, and stocks are down sharply. At the time of writing, it fell 9.4% in 2025.

Nevertheless, these changes fit in with management’s philosophy and there is a strong case of considering stocks to be an excellent value. This is the low point.

Let's start with the changes announced by UPS. CEO Carol Tome said the changes were necessary because UPS could “lose momentum” in the U.S. unless it addresses three specific challenges:

Management decided to take preemptive action against these “challenges” in two ways. First, it agreed to Amazon's consent, gradually reducing its delivery volume until 50% of its current volume through the second half of 2026. E-commerce company.

Secondly, UPS will bring SurePost delivery within USPS.

These changes can be seen immediately in the full year guide for 2025, which expects lower revenue (less Amazon deliveries), but has a higher overall operating margin and a higher operating margin in the domestic packaging sector in the U.S. Therefore, management expects adjusted operating profit to increase as it enacts strategic changes to adjust its network from lower Amazon delivery and reaps benefits from a positive shift in profit margins.

UPS guidance

2024

2025 (IS)

income

$91.1 billion

$89 billion

Non-GAAP adjusted operating margin

9.8%

10.8%

Impression of non-GAAP adjusted work margin*

$8.9 billion

~$9.6 billion*

Data source: UPS presentation. GAAP = universally accepted accounting practice. *Author's calculations.

In theory, at least the plan makes sense, but the market sold stocks in the news, and many Wall Street analysts lowered their price targets. The reasoning for both moves is likely to come from doubts about UPS' plans to reduce Amazon's delivery volume and reduce its network costs at the same time. CFO Brian Dykes promised to raise more colors on the issue of first-quarter earnings convening in months, but investors have reason to be cautious, giving UPS the past few years Execution.

Workers transport the parcel to the house.
Image source: Getty Images.

That said, most of UPS’s problems in recent years have come from a combination of small-package delivery in the United States and the lasting and expensive labor disputes in 2023.

Furthermore, there are clear signs that UPS is improving its basic business. The three-year change plan outlined last year at Investor Day involves continuing to focus on expanding delivery of targeted areas such as small and medium-sized enterprises (SMBs) and healthcare, while investing in productivity-enhancing IT (automation and smart facilities) to Enable asset merger.

Early results are encouraging. SMB volume rose from 28.6% in 2023 to 28.9% in U.S. sales grew to 28.9% in 2024, due to a 17% increase in its digital access program. Management is expected to grow to 32% in 2025. Healthcare-related sales grew 5% to $10.5 billion in 2024 with the goal of reaching $20 billion by 2026. In addition, IT investment has led to 11 buildings, and management continues to invest, and management continues to invest in intelligent and automated facilities.

Additionally, as mentioned earlier, one of the key indicators to follow up with UPS is the difference between its revenue per piece (RPP) and cost per piece (CPP) in the domestic packaging sector in the U.S. During the second quarter operation, UPS reported favorable results.

UPS US Domestic Packaging Department

First quarter of 2024

Second Quarter 2024

2024 third quarter

Fourth quarter 2024

Income per item

(0.3)%

(2.6)%

(2.2)%

2.4%

Adjust costs

4.1%

2.5%

(4.1)%

0.9%

spread

(4.4 pp)

(5.1 pp)

1.9 pp

1.5 pp

Data source: UPS presentation. pp = Percentage.

Focusing on higher premium delivery rather than chasing delivery is at the heart of UPS’s “better than bigger” approach, and plans to reduce Amazon’s lower Amazon delivery is completely reasonable. Meanwhile, UPS demonstrates fundamental progress in its strategic goals (SMB, healthcare, "future network") and expands the RPP/CPP differences, which shows that it can be confident of reaching its goals.

Two people calculate cash.
Image source: Getty Images.

While there is no guarantee that UPS will successfully reduce Amazon volume and smoothly reduce costs in the process, the lagging revenue of 14.1 times and dividend yield of 4.9% provides good security and good security. Inventory looks like a good value prospect.

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John Mackey, former CEO of Amazon's subsidiary Whole Foods Market, is a member of the board of directors of Motley Fool. Lee Samaha has no position in any of the stocks mentioned. Motley Fool has a place and recommends Amazon. Motley Fool recommends joint parcel services. Motley Fool has a disclosure policy.

This is what UPS’s commemorative news means to investors, originally published by Motley Fool