UPS May Cut Its Lofty Dividend

Image Source: TradingView

By Brian Nelson, CFA

United Parcel Service (UPS) recently posted second quarter results that were mixed with revenue beating the consensus forecast, but non-GAAP earnings per share coming up short. Second quarter consolidated revenues were $21.2 billion, while consolidated operating profit was $1.8 billion, or $1.9 billion on a non-GAAP adjusted basis. It posted a non-GAAP adjusted consolidated operating margin of 8.8% in the period. Diluted earnings per share came in at $1.51 for the quarter, while non-GAAP adjusted diluted earnings per share were $1.55.

Management had the following to say about the results:

I want to thank all UPSers for their dedication and hard work in what continues to be a dynamic and evolving trade environment. Our second quarter results reflect both the complexity of the landscape and the strength of our execution. We are making meaningful progress on our strategic initiatives, and we’re confident these actions are positioning the company for stronger long-term financial performance and enhanced competitive advantage.

Looking to 2025, UPS is not providing full year revenue or operating profit guidance due to the current macroeconomic uncertainty. The firm is working hard to become more efficient with $3.5 billion in expected expense reductions due to its network reconfiguration and Efficiency Reimagined initiatives. That said, UPS registers a Dividend Cushion ratio of 0.4, below parity, and its lofty dividend yield of 7.8% speaks to risk of a dividend cut. We like UPS but would not be surprised if it slashes its payout in coming periods. Buyer beware.

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