UPS Faces 8% Domestic Volume Decline, 15% Earnings Cut

Bank of America Securities analyst Ken Hoexter has reiterated a "buy" rating for United Parcel Service (UPS) while lowering the target price by 3% to $129. This adjustment comes as the company is expected to report an 8% decline in U.S. domestic business volume for the first quarter, attributed to uncertainties surrounding tariffs and winter weather conditions. The analyst's report, released on April 29, highlights the potential impact of these external factors on UPS's performance during the quarter.

Hoexter's analysis indicates that UPS may lose 50% of its Amazon business by the mid-2026, while the remaining 50% of SurePost business volume will be internalized, leading to an increase in shipping rates. This shift in business dynamics is expected to affect UPS's financial performance in the coming years. Consequently, Hoexter has lowered the first-quarter earnings per share estimate by 15% to $1.31 and the 2025 earnings per share estimate by 6% to $7.40.

UPS reported that while January's trends were above target, February and March saw stagnant transaction volumes. The company also noted that it is reluctant to make additional structural cost cuts beyond the current targets due to the anticipated easing of temporary tariff demand freezes. Hoexter anticipates that UPS's first-quarter international business adjusted operating profit will be $6.43 billion, down 12% from the previous estimate of $7.33 billion, with the operating profit margin potentially decreasing from 17% to 15%.

Despite these challenges, Bank of America Securities maintains a "buy" rating for UPS, citing the company's proactive approach to reducing structural costs. The target price of $129 corresponds to 17.5 times the 2025 earnings per share estimate, reflecting a cautious yet optimistic outlook on UPS's future performance. This balanced approach underscores the analyst's confidence in UPS's ability to navigate short-term headwinds while maintaining long-term growth prospects.