UPS (NYSE: UPS) has experienced quite a dip in recent years. Shares of the global logistics giant are currently down more than 50% from their peak a few years ago. As a result, its dividend yield has skyrocketed to 6.5%. It has battled a barrage of headwinds, including high labor costs, tariffs, weaker market conditions, and a strategic decision to reduce its reliance on its top customer, Amazon.
However, while shares of UPS are down, the logistics leader appears to be right on the cusp of turning things around. That makes now a great time to buy the dip before a reacceleration begins.
UPS has realized that not all volumes are worth the cost. As a result, the company made the strategic decision earlier this year to cut the volumes it ships for Amazon by over 50% by the end of next year. While Amazon contributes around 20% to 25% of its volume, it only supplied about 11% of its revenue last year. Most of the volumes it ships for the top e-commerce company have low profit margins.
As part of the transformational shift away from Amazon, UPS is undergoing a major restructuring. It aims to cut $3.5 billion in costs by the end of this year by reducing its headcount and closing locations.
The company is also investing to grow its more profitable business lines, including healthcare logistics. It closed its $1.6 billion acquisition of Andlauer Healthcare Group in November to enhance its complex healthcare logistics operations.
The slow shift away from Amazon will continue to negatively impact the company’s results. Its revenue declined by 3.7% in the third quarter while its adjusted earnings per share fell 1.1%. However, the company is starting to see some underlying progress. Its U.S. revenue per piece grew by 9.8% during the quarter, while its domestic operating margin rose slightly.
Meanwhile, some of the company’s other headwinds appear to be slowly fading. Rival FedEx reported better-than-expected results for its fiscal second quarter, despite ongoing trade uncertainty and weak shipping markets. The company also increased its guidance for the fiscal year. It now expects sales to grow 5% to 6% (up from 4% to 6%) and adjusted earnings between $17.80 and $19 per share (increasing the low-end from $17.20 per share). UPS also provided investors with a better-than-expected outlook for the fourth quarter.