Shares of United Parcel Service fell sharply on Tuesday after the shipping giant reported disappointing earnings that showed its cargo business remains weak.
UPS on Tuesday reported second-quarter earnings of $1.79 a share on revenue of $21.8 billion. Wall Street had expected earnings of $1.99 a share on sales of $22.2 billion, according to FactSet. A year ago, UPS earned $2.54 a share on sales of $22.1 billion.
The stock fell 12% to $127.73.
S&P 500
It increased by about 0.2%.
Dow Jones Industrial Average
It decreased by approximately 0.1%.
The logistics company, seen as a beacon of the economy, also updated its 2024 outlook, lowering its consolidated revenue forecast to $93 billion, down $250 million from its previous midpoint. Operating profit is now expected to be about $8.7 billion, up from the midpoint of its previous outlook of about $9.6 billion. Wall Street now expects operating profit to be about $9.6 billion in 2024.
The numbers were weak. Lower shipments, falling prices and rising labor costs have weighed on profits. Adjusted profits have fallen year-over-year for the sixth consecutive quarter, according to FactSet. Sales have fallen for seven consecutive quarters.
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In the U.S. domestic market, sales volume growth returned, up 1% year over year. This is a small gain, but higher sales volumes do not lead to higher profits. “The market will come out of the second quarter feeling relieved that sales volumes are intact,” Bernstein analyst David Vernon wrote. “At the same time, [time wonder] Is there a shift in emphasis on earnings quality from value to quantity? We are becoming increasingly bearish on margin improvement rates.”
He has rated UPS shares as a “buy” with a target price of $184.
The stock price fell despite relatively low expectations. Through Tuesday, UPS shares were down nearly 8% this year, lagging the S&P 500's gain of about 24%.
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Transportation investor “sentiment is most negative toward packages … particularly UPS,” Baird analyst Garrett Holland said in a preview report.
But he expected UPS to meet its second-half guidance, which didn't happen. Holland rates UPS shares a Buy with a $170 price target.
The options market suggests that UPS shares will rise or fall by about 5% after the earnings release. Over the past four earnings releases, the stock has risen by an average of about 4%. During that period, the stock has risen once and fallen three times.
Please contact Al Root at allen.root@dowjones.com and George Glover at george.glover@dowjones.com.
