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(Bloomberg) -- United Parcel Service Inc. shares plunged after the company projected annual revenue well below expectations, telling investors that a long-awaited rebound in demand for its parcel services won’t arrive this year and prompting it to slash its low-margin business with Amazon.com Inc.
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UPS’ core parcel operations have endured a prolonged demand trough as package volumes have fallen from pandemic-era peaks. Some customers also have traded down from premium to economy services, cutting into the Atlanta-based company’s earnings.
It aims to adapt by shipping fewer and higher-margin packages and cutting back on less profitable deliveries. UPS said Thursday it reached an agreement with Amazon to lower volumes by more than 50% by the second half of 2026.
“Amazon is our largest customer, but it’s not our most profitable customer,” Chief Executive Officer Carol Tomé told investors on a conference call.
Amazon confirmed it would ship fewer parcels with UPS, even though the online retailer had initially asked to ship more through the courier. “We’ll continue to partner with them and many other carriers to serve our customers,” Amazon spokesperson Kelly Nantel said in an emailed statement.
UPS forecast revenue of $89 billion for 2025, compared with the average analyst expectation of $94.9 billion. It said 2024 revenue came in at $91.1 billion. Business with Amazon made up 11.8% of that total.
The rapid unwinding of UPS’ business with Amazon came as a surprise, said Daniel Imbro, an analyst at Stephens Inc.
“This does fit with their strategy of better, not bigger,” Imbro said by email. “But it appears to be a headwind to earnings, given the lack of underlying revenue growth.”
Shares of UPS fell 18% to $109.92 as of 11:13 in New York, the steepest intraday drop since Oct. 10, 2008. That followed a 20% pullback in 2024, which marked a third year of declines. Amazon fell 1.8% to $232.71.
Tomé’s Troubled Tenure
UPS’ shares have lost half their value since early 2022 and are close to where they traded when Tomé took over as CEO in June of 2020 at the onset of the Covid epidemic. After riding a spike in demand for home delivery early in her tenure, UPS has suffered from falling margins and higher costs. Tomé also is dealing with fallout from UPS’ generous deal with its union in 2023, which raised its labor costs and forced the company to cut its profit outlook.