Is UPS a buy after the latest sell-off?

It wasn’t good news united parcel service (NYSE:UPS) reported fourth-quarter earnings Tuesday afternoon.

The shipping company posted lower-than-expected profits, announced layoffs and gave disappointing guidance for 2024. The combination of these factors sparked a sell-off, with the stock down about 10% from $158 per share at the close of trading on Tuesday. By Wednesday afternoon, it will be about $142.

Let’s take a look at whether the sharp decline in value has presented a buying opportunity for investors.

There’s a lot to unpack

There’s a lot to unpack in UPS’s fourth-quarter earnings report (pardon the metaphor). In short, the results were not good and did not meet expectations.

The company’s total revenue fell 7.8% year over year in the quarter to $24.9 billion, with U.S. segments down 7.3%, International segments down 6.9% and Supply Chain Solutions down 11.4%. Revenue results tracked very closely with the decline in average daily volume (ADV), down 7.4% in the U.S. and 8.3% internationally. But on the bright side, average revenue per unit increased slightly to $13.11 from $13.04 a year ago.

UPS’ net income for the quarter was $1.6 billion, or $1.87 per share, down from $3.4 billion in the fourth quarter of 2022. On an adjusted basis, excluding significant pension-related costs, UPS’s net income was $2.2 billion, down from the fourth quarter of 2022. Adjusted net income a year ago was $3.1 billion.

During an earnings call Tuesday afternoon, UPS CEO Carol Tomé said a number of factors were driving the company’s downturn, including a challenging macroeconomic environment, disruption from labor negotiations and high costs associated with the five-year labor contract the company signed with the Teamsters. He said it contributed to the company’s poor performance. Union for the summer.

To cut costs and “right-size” the organization in 2024, Tomé announced several plans, including plans to lay off employees.

layoff announcement

Tomé said on an earnings call that the company will reduce its workforce by 12,000 jobs this year to align resources with its strategy and cut costs by about $1 billion. Approximately 75% of the staff reductions will occur in the first half of the year. Tomé added that the reductions were primarily aimed at full- and part-time management and contract workers rather than drivers.

The CEO also said UPS is exploring “strategic alternatives” for its Coyote trucking brokerage business. She said the business was “highly cyclical, with significant earnings volatility.”

In addition, the outlook for 2024 was shared in an environment where the small package market is expected to grow by less than 1%. UPS was targeting revenue in the range of $92 billion to $94.5 billion for 2023, up from about $91 billion but lower than analysts had expected for 2024. Additionally, adjusted operating margin is expected to decline from 10.9% to between 10% and 10.6%. % in 2023.

Tomé added on the earnings call: “Given the nuances of the new labor agreement, there will be a sharp contrast between first-half performance and second-half performance. “First-half performance will be compressed, and second-half performance will increase,” he said.

With better financials expected for UPS later in the year along with potentially improving market conditions, there may be a buying opportunity here as the stock has a forward price-to-earnings (P/E) ratio of about 2x. 14. However, there could certainly be greater volatility in the short term.

UPS will host an investor day on March 26 to announce its three-year plan. This will provide more information about the long-term outlook, so it may be better to stay on the sidelines, at least until then.