United Parcel Service (UPS) stock experienced downgrades after reporting lower-than-expected earnings following a new labor deal with the Teamsters union and a weakening economy. Analysts are concerned about profit margins and the economic outlook.
United Parcel Service (UPS) stock experienced downgrades on Wednesday morning in response to its latest earnings report. Wall Street sentiment has been dampened by a combination of rising costs resulting from a new labor agreement with the Teamsters union and a weakening economy.
On Tuesday morning, UPS reported adjusted earnings of $2.54 per share on sales amounting to $22.1 billion. According to FactSet, analysts had expected earnings of $2.49 per share on sales totaling $23 billion. Although the results were mixed, the full-year outlook was undeniably worse. UPS now anticipates revenue of approximately $93 billion and operating margins of around 11.8%, which is a decrease from the April guidance that projected revenue of $97 billion and operating margins of 12.8%.
In premarket trading, UPS stock has decreased by 1.1% and is currently at $178.66, while both S&P 500 and Dow Jones Industrial Average futures have risen by 0.1%.
In light of the earnings report, Loop Capital analyst Rick Paterson decided to downgrade UPS stock from Buy to Hold. He cited a sluggish economy and the likelihood of some customers shifting their volume to rival logistics systems as they await the ratification of the new five-year labor deal with the Teamsters, which was agreed upon in July. Union members will vote throughout the month of August, and investors will closely monitor the progress of this process in the upcoming weeks.
UBS analyst Thomas Wadewitz downgraded UPS stock to Hold from Buy, revising his price target to $185 from $198 following earnings. Wadewitz expressed concerns about profit margins not improving as anticipated due to new labor deal costs. According to Wall Street, UPS operating-profit margins are expected to increase from approximately 11.8% in 2023 to 12.1% in 2024 and eventually reach 13% by 2026. Failure to reach these targets will result in slower earnings growth.
On the other hand, Raymond James analyst Patrick Brown maintained his Buy rating on UPS stock, setting a $205 price target after earnings. In his report, Brown described the quarter as "surprisingly good" amidst an economic slowdown. He also highlighted the positive aspect of having clarity on labor costs for the next five years.
Approximately 40% of analysts covering UPS stock recommend buying shares, with an average price target of around $192, according to FactSet. This average Buy-rating ratio for stocks in the S&P 500 is about 55%.
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