Rising trade tensions are not good news for companies that make their money transporting goods.
Shares of United Parcel Service (UPS -0.42%) plunged as much as 18% following the early April U.S. tariff announcement and were not able to regain much of that drop in the weeks that followed. UPS finished down 13.4% in April, according to data provided by S&P Global Market Intelligence.
Image source: UPS.
Headwinds to continue through 2025
Transportation companies have been driving into a lot of headwinds of late. Shares of UPS have lost more than half of their value in less than three years.
First, the culprit was macroeconomic worries causing large corporations to de-stock inventory, creating a decline in demand for shipping services. United Parcel Service also has been attempting to streamline and focus only on its most profitable lines of business, dumping lower-margin customers like Amazon in the process. That could be a good long-term decision, but in the near term it means a fall in revenue.
The prospects of a trade war further clouded investor hopes for a turnaround. While tariffs were expected, the magnitude of the levies caught investors off guard. With United Parcel Service facing a slowdown that could potentially take more than a year to play out, the stock has remained under pressure.
Is UPS stock a buy?
The company is not sitting still. Late last month, United Parcel Service said it was targeting $3.5 billion in cost reductions in 2025 through network reconfigurations, including the closing of more than 100 less productive facilities. The company is targeting about 20,000 positions for reduction this year.
It is also rushing to expand into higher-margin verticals like shipping for healthcare companies and providing services for small and mid-sized businesses. In April, UPS announced a $1.6 billion deal to acquire Andlauer Healthcare Group to enhance its capabilities in Canada.
Though the business is stuck in a difficult cycle, the need for transportation services is not going to evaporate, and UPS is one of only a handful of companies with the national size and scale to capitalize on long-term demand trends.
Investors will need to be patient, but for those who are willing to ride out the storm, UPS does offer a nearly 7% dividend yield at current prices. For those interested in a mix of growth and income with time to wait out a cycle, this could be a good time to consider shares of United Parcel Service.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
