MW UPS sees consumer sentiment 'near historic lows' hurting small-package deliveries

By James Rogers

This marks the second straight quarter that broader macroeconomic uncertainty has impacted UPS's outlook

Shares of United Parcel Service Inc. dropped in early Tuesday trading after the package delivery giant reported second-quarter profit that missed expectations and said it still wouldn't provide a full-year revenue or earnings outlook given continued uncertainties about tariffs and the economy.

This marks the second straight quarter that broader uncertainties have impacted UPS's (UPS) outlook. The company declined to update its full-year outlook last quarter, citing macroeconomic uncertainty.

Speaking during a conference call, UPS CEO Carol Tomé said that the results "reflect the impact of a complex macro environment."

"Despite uncertainties around trade policies, in the second quarter, the overall U.S. economy demonstrated continued resilience, but our sector, specifically the U.S. small-package market was unfavorably impacted by U.S. consumer sentiment that was near historic lows," she added, according to a CallStreet transcript.

The CEO pointed to a recent research report from McKinsey and said that consumers are trading down in the face of tariffs and other uncertainties while, at the same time, splurging. "For the first time in three years, consumer spending on discretionary categories like restaurants and automobiles outpaced growth in essential items," she added.

On the commercial side of the economy, manufacturing activity in the U.S. remains soft, according to the CEO. "These macroeconomic dynamics impacted overall market demand as well as demand by customer segment and product," Tomé said.

The stock dropped 5.6% in morning trading, putting it on track for its biggest one-day loss in nearly four months. It was in danger of suffering its eighth one-day, post-earnings drop in the past 10 quarters.

The selloff in UPS shares also weighed on rival FedEx Corp.'s (FDX) stock, which was down 0.8%. Last month, FedEx gave a weaker-than-expected outlook when it reported its fiscal fourth-quarter results.

For the second quarter, UPS's adjusted earnings per share, which excludes nonrecurring items, fell to $1.55 from $1.79 in the same period a year ago, just below the FactSet consensus of $1.56. That marked just the second bottom-line miss in the past five years, according to available FactSet data.

Revenue declined 2.8% to $21.2 billion to beat the FactSet consensus of $20.85 billion.

Revenue from the domestic-package business was down 0.8% to $14.08 billion, as a drop in volume offset increases in revenue per piece, but that was above expectations of $13.85 billion. International revenue increased 2.6% to $4.49 billion and supply-chain revenue dropped 18.3% to $2.65 billion.

With regard to the business climate outside of the U.S., Tomé said that "trade follows policy and generally, tariffs are not good for trade." Average daily volume in UPS's China-U.S. trade lane was down 34.8% year-over-year in May and June, she added. The China-U.S. trade lane is UPS's most profitable and Tomé said that volume decline pressured the company's international operating margin.

In a note, Evercore ISI analyst Jonathan Chappell wrote that, while UPS's earnings were "close to the mark," the company's margin miss plus no guidance was a disappointment for investors. Chappell noted that UPS's adjusted consolidated operating margin of 8.8% was 10 basis points (0.1 percentage point) below Evercore's forecast. U.S. domestic operating margin of 7% was 30 basis points below Evercore's 7.3% forecast.

"A combination of lower-than-expected overall and U.S. domestic margins as well as fully rescinded guidance is likely to be viewed unfavorably, particularly as the bull case centered on cost savings more than offsetting ongoing macro-related revenue weakness," wrote Chappell.

In a statement that accompanied the results, UPS said it is still on track to make full-year savings from its Network Reconfiguration and Efficiency Reimagined initiative and still anticipates that $3.5 billion in total cost savings will be achieved in 2025.

In its outlook, UPS said capital expenditures would be approximately $3.5 billion in 2025 and that dividend payments are expected to be around $5.5 billion. These figures are unchanged from the outlook UPS gave when it reported its fourth-quarter results in January.

Speaking during the conference call, Tomé said that the company's Amazon.com Inc. $(AMZN.UK)$ "glide down" efforts are, for the most part, proceeding as planned. Earlier this year, UPS announced plans to cut its Amazon business by more than 50% in an attempt to shift the company's focus onto more profitable deliveries.

So far this year, UPS has closed 74 buildings because of the Amazon "glide down," according to Tomé.

When asked during the conference call about Amazon-related closures in the second half of the year, UPS CFO Brian Dykes said that the company is still "evaluating a number of different options."

UPS shares are down 24% in 202, compared with the 14.6% drop in FedEx's stock and the S&P 500 index's SPX gain of 8.9%.

-James Rogers

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July 29, 2025 09:52 ET (13:52 GMT)

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