Shares in United Parcel Service (NYSE: UPS), more commonly known as UPS, declined by 20% in the first half of 2025, according to data provided by S&P Global Market Intelligence. The decline comes as investors increasingly stress the company’s prospects of meeting its initial full-year guidance due to the ongoing trade tariff dispute negatively impacting delivery volumes. After missing its initial full-year implied earnings guidance in 2023 and 2024, the last thing investors want to see is management fail to meet its targets in 2025. Still, unfortunately, it’s a real possibility.
These are good questions because the former is a possibility, and so is the latter. The difference is that cutting the dividend is a potentially good outcome for most investors. Still, the uncertainty around it all isn’t good for UPS’ share price.
Starting with its earnings guidance, management began the year forecasting $89 billion in revenue and an operating margin of 10.8%, implying an operating profit of $9.61 billion. In addition, management told investors to expect $5.7 billion in free cash flow (FCF), which would help support $5.5 billion in dividend payments and $1 billion in share buybacks.
Fast-forward to the first-quarter earnings report, and management declined to update investors on its full-year guidance in light of weaker-than-expected delivery volumes in the first half amid uncertainty created by the trade conflict.
Second, the pressure on its earnings guidance translates to pressure on its FCF guidance and, ultimately, its dividend payout and buyback plans, as noted above. The initially planned FCF of $5.7 billion wouldn’t have covered the dividend and buybacks in itself.
While appreciating that many investors are holding the stock precisely because it offers a hefty dividend (currently trading on a 6.5% yield), the reality is that using cash generated in the business to hand it back to investors isn’t always the best strategy. In fact, most investors buy stocks because they trust management to be able to generate more return on investment than they (investors) can.
That’s particularly the case with UPS right now, as management has identified growth investment opportunities in areas such as healthcare and small and medium-sized businesses, where it’s already highly successful, and has ongoing plans to develop them.
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