UPS Cuts Amazon Deliveries to Drive Long-Term Profitability
Key Points:
* UPS to reduce Amazon delivery volume by over 50% by 2026.
* Move aims to increase margins and focus on higher-yield operations.
* UPS projects revenue of $89 billion in 2025, below consensus forecasts.
* Q4 earnings per share exceed expectations, driven by higher US domestic operating margin.
* Investors' focus shifts to weaker sales outlook and reduced Amazon volumes.
UPS's Strategic Shift
UPS's decision to cut Amazon deliveries is part of a broader strategy to optimize operations and enhance profitability. CFO Brian Dykes emphasizes their goal to "drive higher yields and returns" in areas where they can maximize value.
Amazon's Role in Revised Delivery Network
Amazon will remain a long-term partner for UPS, but the company will focus primarily on deliveries with multiple pickup locations or cross-country shipments.
Financial Impact
While the reduced Amazon volumes will lead to lower revenue in the near term, UPS anticipates higher margins in the long run. The company's 2025 revenue projection of $89 billion falls short of Wall Street's consensus forecast of $94.9 billion.
Market Reaction
Analysts express surprise and concern over the pace of the Amazon delivery reduction. Jonathan Chappell of Evercore ISI notes that this "volume loss" will negatively impact near-term results.
Q4 Performance
UPS reported strong fourth-quarter earnings per share, exceeding expectations. Its US domestic operating margin also surpassed forecasts. However, investors remain focused on the weaker sales outlook and reduced Amazon volumes.