UPS Slips to Multi-Year Low Despite Q4 Earnings Beat: Should You Buy?

United Parcel Service UPS reported better-than-expected fourth-quarter 2024 earnings on Jan. 30. However, revenues fell short of the Zacks Consensus Estimate and the stock tumbled to a multi-year low of $109.62.The sharp decline was due to the decision to reduce business with its largest customer Amazon AMZN. To this end, UPS’ management announced that it has reached an agreement in principle with its largest customer to lower AMZN’s volume with UPS by more than 50% by June 2026.The Amazon news was mainly responsible for the shipping giant issuing a lackluster revenue guidance for 2025. For the current year, on a consolidated basis, UPS expects revenues to be $89 billion, way below the Zacks Consensus Estimate of $94.6 billion.Why the Decision to Cut Business With AmazonAgreed that Amazon is United Parcel Service’s largest customer (the two companies have been in partnership for nearly 30 years), but it is not UPS’ most profitable customer as stated by Carol Tome, UPS’ chief executive officer. Tome stated that Its margin is very dilutive to the U.S. domestic business.The small package market is a slow-growth market with lower margins. The small package market, excluding Amazon, is expected to grow in the low single digits in 2025. The profitability associated with transporting smaller packages over shorter distances is diminishing by the day. The CEO noted that as multiple assets and resources were used to support the volume of Amazon packages, the volume declines logically meant that the need to support those resources also got reduced.   The Amazon move will help the company to focus on fewer but more lucrative deliveries. The move is also in line with UPS’ objective to slash $1 billion in costs for buildings, trucks, planes and labor this year. The move will also help reduce concerns regarding too much volume being concentrated on a single customer.The sharp drop in United Parcel Service’s stock price on Jan. 30 naturally gives rise to the question as to whether investors should buy UPS stock now or wait for a better entry point. Before we check the investment worthiness of UPS stock, let us take a look at the company’s fourth-quarter performance in brief.Highlights of Q4 EarningsUnited Parcel Service reported fourth-quarter 2024 earnings (excluding 74 cents per share) of $2.75, which beat the Zacks Consensus Estimate of $2.52 and improved 11.3% year over year. U.S. Domestic Package revenues of $17.3 billion grew 2.2% year over year, driven by a 2.4% increase in revenue per piece and a rise in air cargo. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Revenues in the International Package division summed $4.9 billion, which increased 6.9% year over year, owing to an 8.8% rise in average daily volumes. Supply Chain Solutions revenues of $3.06 billion decreased 9.1% year over year due to the divestiture of Coyote Logistics, its freight-brokerage business. UPS completed the sale of Coyote for slightly more than $1 billion to RXO Inc. RXO last year.Apart from the revenue guidance, highlighted earlier in the writeup, United Parcel Service gave current year projections for other key items as well. Adjusted operating margin is expected to be 10.8%. Capital expenditures of about $3.5 billion are expected to be incurred in the current year. UPS expects to make dividend payments of around $5.5 billion and buy back shares worth $1 billion in 2025. The effective tax rate is expected to be 23.5%. The average daily volume for the U.S. Domestic segment is expected to decline 8.5% in 2025, despite a revenue per piece growth of 6%. Average daily volume in the International Package segment is expected to grow in mid-single digits throughout 2025.Headwinds Facing UPS StockUPS has been suffering from revenue weakness as geopolitical uncertainty and higher inflation continue to hurt consumer sentiment and growth expectations. The weak demand scenario has led to a decline in the volume of packages shipped. The slowdown in online sales in the United States, apart from soft global manufacturing activity adds to the woes. Labor costs, courtesy of the deal with the Teamsters union, are high, limiting bottom-line growth. Per UPS management, due to this deal, wage and benefit costs will increase, seeing a 3.3% compound annual growth rate for the next five years.Amid revenue weakness, rising capital expenses as witnessed in UPS’ case are unwelcome and may dent profit margins. United Parcel Service’s high debt levels represent a further cause for concern.UPS’ Disappointing Price PerformanceThe shipping giant’s struggles are not limited to only Jan. 30. UPS shares have performed disappointingly over the past year, underperforming its industry, sector and rival FedEx FDX in a year, mainly due to low shipment volumes.1-Year Price ComparisonImage Source: Zacks Investment ResearchUPS has been trading below its 50-day and 14-day simple moving averages, signaling a bearish trend.Image Source: Zacks Investment ResearchUPS Stock Inexpensive Relative to IndustryUnited Parcel Service’s valuation is attractive at the moment. In terms of the forward 12-month Price/Sales ratio, UPS is trading at 1.03X, lower than the industry’s 1.13X. The reading is also below its median over the last five years. The company has a Value Score of A.Image Source: Zacks Investment ResearchHow Should Investors Play UPS Stock Now?UPS’ expansion efforts look good. In a bid to expand its network,  United Parcel Service announced in 2024 that it would acquire Estafeta, a Mexican express delivery company. Through this acquisition, UPS aims to capitalize on increased cross-border opportunities amid Mexico's manufacturing boom and global supply-chain shifts. In August, UPS inked a deal with Ninja Van Malaysia to expand the reach of its express delivery services in Malaysia. UPS’ shareholder-friendly initiatives are commendable as well.Meanwhile, while its valuation may appear tempting, it does not seem to be the right time to place bets on UPS stock now. The decline in the volume of packages shipped due to a weak demand scenario apart from high labor costs and escalated debts are major concerns.Due to the headwinds, we do not advise buying this Zacks Rank #3 (Hold) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Investors should monitor the company’s developments closely for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s current Zacks Rank supports our thesis. Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report United Parcel Service, Inc. 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