UPS Faces 8% Domestic Volume Decline, 15% Earnings Cut in Q1

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 costs. Consequently, Hoexter has reduced 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 noted that while January's trends were above target, February and March saw stagnant transaction volumes. The company also expressed reluctance to further reduce structural costs beyond current targets, citing the anticipated easing of temporary tariff demand freeze.

Hoexter anticipates that UPS's first-quarter international business adjusted operating profit will be $6.43 billion, a 12% decrease from the previous estimate of $7.33 billion. The operating profit margin is expected to drop 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.

UPS's stock closed at $109.95 on Tuesday, down 5.05% for the day. The stock has declined 12% year-to-date. The analyst's cautious outlook reflects the near-term challenges posed by tariff uncertainties and adverse weather conditions, while the "buy" rating underscores confidence in UPS's long-term fundamentals and ability to navigate short-term headwinds. The balanced approach taken by the analyst provides a nuanced view of the market dynamics and UPS's strategic position within the industry.