UPS Stock Falls on Earnings Miss, Weak Growth. Dividend Is ‘Rock Solid,’ Says CEO.

UPS is struggling with weak demand and the effects of tariffs. (Joe Raedle/Getty Images)

United Parcel Service stock dropped Tuesday after the company reported weaker-than-expected earnings. The results weren’t all that surprising, but growth remains elusive.

UPS on Tuesday announced second-quarter earnings per share of $1.55 on sales of $21.2 billion. Wall Street had expected a profit of $1.56 a share on sales of $20.9 billion, according to Bloomberg. A year ago, for the second quarter of 2024, UPS reported earnings per share of $1.79 on sales of $21.8 billion.

Adjusted operating profit of $1.9 billion roughly matched Wall Street‘s projection. Operating profit margins in the quarter were 8.8%.

Revenue and operating-profit guidance weren’t updated. In January, UPS management said it expected full-year sales to be about $89 billion and operating profit to be about $9.6 billion. In April, amid trade and tariff uncertainty, UPS said it was “not providing any updates to its previously issued consolidated full-year outlook.”

Annual dividend payments are expected to be $5.5 billion, which indicates no change in the $1.64 quarterly payout. Free cash flow in 2025 is expected to be about $4.5 billion. One year of free cash flow below the dividend payout shouldn’t be unmanageable for the company.

“UPS is rock solid strong and so is our dividend,” said CEO Carol Tome on the company’s earnings conference call. “The UPS dividend is backed by solid free cash flow and a strong investment-grade balance sheet. We know how important the dividend is to our investors.”

Shares closed down 10.6% at $90.84, near the lows of the day, while the S&P 500 and Dow Jones Industrial Average fell 0.3% and 0.5%, respectively.

Something troubled investors. “The lack of guide [excited] the bears…but we don’t see much to get over-excited about here,” wrote Bernstein analyst David Vernon in a Tuesday report. “The real story is whether we can exit [2025] margins closer to double digits, which is not priced in today.”

Vernon rates shares Buy and has a $133 price target for the stock, but acknowledges the “macro” economic environment will make margin improvement difficult.

Free cash flow might have concerned investors, too. Free cash flow was negative in the quarter, missing Wall Street’s expectations for about $300 million. That was mainly a timing issue, says CFO Brian Dykes, adding the company remains focused on generating cash.

Sales and earnings dropped by about 3% and 13%, respectively. UPS isn’t alone in its struggle for growth. Many U.S. logistics providers have been struggling as well since Covid-19 brought a surge in shipments that then faded away.

UPS generated sales and earnings per share of $27.8 billion and $3.59, respectively, in the fourth quarter of 2021. In the 15 quarters since then, sales have fallen year over year 10 times, and earnings per share have fallen nine times, according to Bloomberg. Operating-profit margins have declined to about 8% from 14% over that span.

It’s hard to maintain margins without volume flowing through a network. Average daily U.S. domestic volume was 16.6 million packages, down about 7.3% year over year. In the first quarter of 2025, average daily U.S. domestic volume was 17.4 million packages, down about 3.5% year over year.

Wall Street didn’t expect a turn in business conditions yet. Evercore ISI analyst Jonathan Chappell recently lowered his forecasts for earnings in a preview report, citing “continued deceleration in domestic demand.”

He cut his second-quarter earnings-per-share estimate to $1.52 from $1.61, while his forecast for the full year went to $6.92 from $7.24. Chappell rates UPS stock Hold and has a price target of $103 for the shares.

It is difficult to get investors excited about a stock with falling estimates. UPS is trying to control what it can, exiting less-profitable businesses with Amazon.com and focusing on higher-margin products such as cold-chain logistics.

Coming into the second-quarter report, UPS stock was down roughly 20% year to date—trailing the S&P 500 by about 28 percentage points.

Tuesday trading qualifies as an unwelcome surprise. Options markets implied shares would move about 6%, up or down, following earnings. Shares moved an average of about 8% over the past four reports. They have fallen three times and risen once over that span.

Write to Al Root at allen.root@dowjones.com