Today's Decrease in UPS Share Value Explained
UPS and the U.S. Postal Service haven't renewed their deal for 2025, leaving investors scratching their heads and causing UPS shares to take a 3% tumble by 2pm Eastern on Friday. The ins and outs of this situation remain a mystery, contributing to the unease among investors.
Now, let's talk about SurePost. Launched back in 2011, this UPS service was a hit among e-commerce companies and budget-conscious customers. It offered affordable rates paired with non-expedited transit, with postal carriers handling the final delivery. However, the future of SurePost is up in the air, and the Post Office's involvement isn't clear-cut anymore.
According to the Teamsters union, representing UPS employees, millions of packages that previously depended on SurePost and USPS are now being delivered by UPS package cars. This move could be a long-term boon for pricing, but it might lead to some near-term uncertainty. FedEx, for instance, estimated that it would take around a year to complete a similar transition.
As for whether UPS is a worthy buy in 2025, the company isn't yet discussing SurePost. Analysts, however, are bracing for questions about the program's financial implications during UPS's post-earnings call on January 30.
UPS is currently thriving, boasting a dividend yield that exceeds 5%. Despite the uncertainties, patient investors can trust UPS to deliver, albeit perhaps not as smoothly as before.
Here's a bit of background on the situation: Following the non-renewal of the UPS-USPS deal effective in 2025, UPS decided to bring SurePost operations in-house. This means UPS will manage all deliveries, excluding PO boxes and delivery to certain AK, HI, PR, and APO/FPO addresses. To offset the additional costs, UPS has introduced surcharges for SurePost packages.
While this shift could boost UPS's profitability in the long run, it may create some turbulence in the short term. Rival companies like FedEx have had to face similar challenges when making a similar transition.
It's important to note that analysts are divided on the impact of these changes. Some view the move as a strategic adjustment, while others are worried about the potential drop in volume and increased cost per piece. The fate of UPS stocks largely depends on the company's ability to navigate these changes succesfully.
- Investors are closely watching UPS's post-earnings call on January 30, as analysts anticipate questions about the financial implications of managing SurePost operations in-house from 2025, due to the non-renewal of the UPS-USPS deal.
- The shift of SurePost operations in-house by UPS, resulting from the non-renewal of the contract with USPS, has led to the introduction of surcharges on SurePost packages to offset the additional costs.
- UPS's decision to manage all SurePost deliveries, excluding PO boxes and specific addresses, could increase turbulence in the short term, as experienced by rival companies like FedEx during their similar transitions.
- In the financial context of 2025, UPS's determination to navigate the challenges of managing SurePost operations in-house will play a crucial role in determining the ups and downs of its stock prices, given the divided opinions among analysts regarding the program's potential impact on volume and cost per piece.
