Here's Why Ups Stock Failed To Deliver Last Year

Shares of package delivery giant UPS (NYSE: UPS) fell by 19.8% in 2024, according to data provided by S&P Global Market Intelligence. It was a challenging year for the company operationally, and its adjusted operating profit is set to come in significantly lower for the year than originally expected. Let's look at what UPS faced in 2024 and what to expect from it in 2025.

What happened to UPS stock in 2024

The progression of the company's guidance throughout the year disappointed investors. As shown in the table below, management lowered its implied full-year profit guidance at the time of its second-quarter earnings report in July.

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That was a somewhat embarrassing development, considering that during UPS's investor day presentation in March, management had reaffirmed the guidance it gave in January, then reiterated it in April. Given the cut to its 2024 guidance, investors had reason to doubt it would hit the three-year targets that management laid out in March.

In a nutshell, delivery volumes last year were weaker than expected, and the strained economic environment encouraged customers to pick cheaper options. As a result, UPS found that a greater percentage of its volume than expected was coming from lower-revenue-per-piece deliveries. That was at odds with management's efforts to target higher-revenue-per-piece and more profitable deliveries.

Data sources: UPS presentations. * Calculation by author.

What it means to UPS investors

The package delivery industry is cyclical, oscillating in tune with the economy, and there's little management can do about relatively high interest rates, which stayed higher for longer than many expected in 2024. As such, the transportation company appears to be muddling through a challenging environment by taking on a greater volume of lower-revenue-per-piece deliveries. Still, management did a good job of lowering its own cost per piece in the third quarter, and it raised its full-year margin guidance accordingly on the subsequent earnings call.

Meanwhile, the company's underlying and successful initiatives to expand its revenues from small and medium-sized businesses (SMBs) and healthcare companies are working. It's making productivity-enhancing network investments and downsizing operations to fit demand. A lower interest rate environment would help growth, and the entire delivery industry will soon rebalance the overcapacity that sapped logistics companies' pricing power in 2024. All told, UPS looks well placed to do well in 2025.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.