United Parcel Service (UPS) brought out exceptional financial results for Q1 2024. Those profits were well above what the market expected. The company provided details on measures it is already taking to address projected economic headwinds. It announced plans to lay off 20,000 employees, a response to falling shipping volumes from its largest client, Amazon. This relocation is a first step in a larger attempt to reduce expenses and improve efficiency.
CEO Carol Tome emphasized the necessity of these changes, stating, “The actions we are taking to reconfigure our network and reduce cost across our business could not be timelier.” This sense of optimism is a product of the company’s aggressive maneuvering through the larger, uncertain economic landscape.
UPS’s decision comes as Amazon, which contributed 11.8% of UPS’s total revenue in 2024, has shown signs of reduced shipping demands. As we reported earlier this year, UPS escalated its strategy to curtail millions of lost Amazon deliveries. This action is undoubtedly an indicator of a dramatic change in their game changing partnership. UPS’s revenue for its U.S. domestic segment flourished even in the face of the storm. It increased 1.4% to reach $14.46 billion during the first quarter, driven by an increase in air cargo and improved revenue per package.
As part of their strategy to save money, UPS intends to eliminate or consolidate 73 leased and owned facilities by the end of June 2025. The company estimates that these job cuts and facility closures will result in savings of approximately $3.5 billion by 2025. UPS has forecasted additional costs of $400 million to $600 million in this timeframe. These costs will mostly be due to separation benefits and lease termination expenses.
The company is projecting $89 billion in revenue for the full year with an operating margin of approximately 10.8% expected. UPS is experiencing significant headwinds with its volumes, which poses a risk to its long-term growth trajectory. As noted by Evercore ISI analyst Jonathan Chappell, “The removal of 2025 guidance will likely create a wide range of outcomes that may be difficult to underwrite without greater macro clarity.”