Justification for Today's United Parcel Service Stock Decline

While the future of United Parcel Service (NYSE: UPS) appears bright, the company's short-term prospects are less encouraging. At 1:30 p.m. ET, UPS shares were down nearly 8% as investors are fixated on what's coming up next.

Impending acceleration At UPS's annual investor day, the firm not only met but exceeded the expectations of its hopeful audience with some impressive projections. Revenue for the shipping behemoth is expected to reach $108 billion to $114 billion in 2026, with an adjusted operating margin of 13% anticipated by that year.

In comparison, the firm's sales in 2023 was $91 billion. For the year 2026, the average projection from Wall Street was $101 billion.

Large clients have reduced inventories due to concerns about the economy and consumer health, creating a dismal situation for shippers. UPS has issued a profit warning, predicting a 40% year-over-year decline in the current quarter, calling it the "toughest" of 2024. The business is attempting to aggressively reduce expenses as a result.

The small package business is expected to resume growth in 2024 and beyond, according to CEO Carol Tomé, who made the announcement after the market had a challenging year in 2023. "Over the next three years, we plan to make bold moves to create a growth flywheel in premium markets, while at the same time drive higher productivity and efficiency."

Was UPS's investor day forecast accurate? Since their all-time high, when shipping was the sole factor sustaining the retail sector, UPS shares have declined 22% year-over-year and nearly 40% from their pandemic high. 

Although cyclical factors have contributed to the decline, the company has lagged behind rival FedEx by 22% thus far in 2024 and over 50% in the previous year.

Management's ability to persuade investors that FedEx's cost-cutting program was effective has contributed to the recent rebound in the stock price. UPS remains an investor "prove it" story according to its comments about the next months. Management must show results before the shares can accelerate, although the potential is high.

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