UPS: A Perfectly Reasonable Decline

United Parcel Service (UPS +2.02%), or UPS as it’s commonly known, is currently experiencing a period of what one might delicately term ‘unpopularity’ on Wall Street. The stock has, shall we say, lost a significant portion of its value since peaking in early 2022 – approximately half, if anyone’s counting. (Which, statistically, someone always is. They’re probably compiling a spreadsheet. About spreadsheets.) This isn’t necessarily a bad thing, you understand. In fact, it’s precisely the sort of situation that tends to pique the interest of those of us who specialize in observing the universe’s peculiar habit of rewarding pessimism.

The Problem (As Perceived by Those Who Expect Things to Stay the Same)

During the recent, and now receding, pandemic, demand for UPS’s package delivery services experienced a rather enthusiastic surge. It was, for a brief, shining moment, as if everyone had collectively decided to take up online shopping as a full-time hobby. Then, quite logically, people began to venture back into actual shops, preferring the tactile experience of purchasing things rather than waiting for a cardboard box to arrive. E-commerce didn’t vanish, of course, but the abrupt return to normalcy (a concept that remains, to many, deeply unsettling) did rather alter UPS’s demand landscape. Management, in a display of commendable forward thinking (or perhaps just a desperate attempt to avoid being swept away by the tide), decided a business overhaul was in order.

Essentially, they’re investing in technology, which, as anyone who’s ever attempted to update their operating system knows, is a process fraught with peril and unforeseen consequences. The idea is to operate more efficiently, which translates to fewer staff and the disposal of perfectly good distribution facilities. (One imagines a solemn ceremony involving cardboard boxes and a moment of silence.) They’re also focusing on their most profitable customers, a move that has, inevitably, involved politely but firmly discouraging those who contribute less to the bottom line, including, notably, Amazon. More spending, less revenue – a classic recipe for short-term financial discomfort, and precisely the sort of thing that sends the market into a tizzy.

Looking Beneath the Numbers (Which Are, Let’s Face It, Just Numbers)

The truly interesting thing is that this revenue and earnings pressure was, in a sense, expected. It’s what happens when a company deliberately attempts to reinvent itself, which is a bit like trying to change the tires on a moving vehicle. (Don’t try that at home.) The key is to observe what’s actually being achieved. For example, in the second quarter of 2025, revenue per piece delivered in the U.S. business rose by 5.5%, despite an overall revenue dip of 0.8%. This, logically, means they’re delivering fewer packages, but making more money on each one. A perfectly reasonable outcome, really.

This trend continued, with a 9.8% jump in revenue per piece in the third quarter, despite a 2.6% revenue decrease. The recently released fourth-quarter results confirm this pattern, with revenue per piece up 8.3% even as overall U.S. revenue fell by 3.2%. It’s a bit like shrinking a balloon – less overall surface area, but the remaining bits are more tightly packed. (Please do not attempt to apply this principle to financial markets.)

Progress (Of a Sort)

Essentially, United Parcel Service is improving its profitability while simultaneously reducing its size. This is precisely what a turnaround effort is intended to achieve. It’s a bit counterintuitive, perhaps, but then again, the universe rarely operates according to our expectations. This is why many investors – the slightly cynical, quietly optimistic ones – believe UPS’s best days may still lie ahead. If you can discern these nascent green shoots amidst the financial foliage, you might consider adding the stock to your portfolio. However, a word of caution: the dividend payout ratio is hovering around 100%, which suggests that dividend enthusiasts attracted by the 6.3% yield should tread with a degree of caution. It’s a bit like balancing a stack of cardboard boxes – precarious, but potentially rewarding. (Though, ultimately, boxes will fall.)

2026-02-02 18:22

The Problem (As Perceived by Those Who Expect Things to Stay the Same)

Looking Beneath the Numbers (Which Are, Let’s Face It, Just Numbers)

Progress (Of a Sort)

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