UPS’s (UPS) announcement that it will cut back on deliveries for its largest customer, Amazon (AMZN), sent its stock tumbling as much as 15% on Thursday. But the company says it made the change with the goal of driving profitability long term.
UPS CFO Brian Dykes told Yahoo Finance that the strategy is part of an overall shift for the company «to manage our assets and our resources in the areas of the market where we can, quite frankly, drive higher yields and returns.»
UPS will cut the volume of Amazon deliveries it transports by more than 50% by the second half of 2026.
Dykes noted while the move leads to lower volumes in the coming quarters, it is also expected to coincide with higher margins.
«The portion of the business that we’re transitioning out of just doesn’t make sense for us to do,» Dykes said, adding that Amazon will remain a long-term partner but will likely be utilized in deliveries that have multiple pickup locations or involve moving shipments across the country.
UPS said Thursday it expects revenue of «approximately $89 billion» in 2025, below Wall Street’s consensus forecasts of $94.9 billion.
Evercore ISI analyst Jonathan Chappell wrote in a note to clients that the quarterly release had «something for everyone … but more for the bears.» Chappell described the pace of the reduction of Amazon deliveries as a «surprise.»
«UPS will realign its network for this volume loss, but the speed at which it will unfold will negatively impact near-term results,» Chappell wrote.
For the fourth quarter, which UPS reported on Thursday morning, the company’s earnings per share of $2.75 topped Wall Street’s expectations of $2.53. And its US domestic operating margin of 10.1% was higher than the expectations of «closer» to 9.5%, per Jefferies equity analyst Stephanie Moore.
But Moore added that, for now, the focus among investors is «squarely» on the weak sales outlook and the reduced volumes with Amazon.
«The announcements today add to what has been a frustrating several years for investors,» Moore wrote.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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