The recent quarterly earnings report from FedEx sent shockwaves through the market, with the company’s stock taking a significant hit. As investors scramble to make sense of the news, attention turns to FedEx’s longtime rival, UPS. What does this mean for UPS, and what can investors expect when the company releases its third-quarter 2024 earnings report?
The writing is on the wall: FedEx’s latest earnings report was a disappointment, with revenue and earnings guidance slashed. The company’s CEO cited a weaker-than-expected demand environment, particularly in the US domestic package market, with business-to-business (B2B) deliveries taking a hit. To make matters worse, total average daily volume in the US domestic market declined by 0.4% year over year.
This news has significant implications for UPS investors. The weakness in B2B deliveries suggests that business conditions are unlikely to improve anytime soon, which is concerning given UPS’ already struggling B2B volume. Furthermore, the shift towards lower-yielding services could put pressure on UPS’ margins, a trend that’s already evident in the company’s declining higher-yield next-day air volumes.
The decline in volume growth is also a worrying sign for UPS, as the industry needs volume growth to reduce capacity surplus. With FedEx’s yield coming in lower than expected, it’s reasonable to assume that UPS will face similar pressure.
The question on everyone’s mind is whether the bad news is already priced into UPS stock. While the market’s pessimism could provide an upside, UPS’ track record of guidance has been spotty, and FedEx’s recent update doesn’t suggest conditions are improving. As such, caution is warranted, and investors may want to monitor the stock closely before making a move.
However, looking beyond the near-term volatility, lower interest rates will eventually spur economic growth, leading to increased package delivery volumes. Long-term investors willing to ride out the storm may find UPS an attractive opportunity.
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