Trump Tariffs: Here's What UPS Investors Need to Know

Shares of United Parcel Service appear lost in transit at the start of 2025, trading down 23% year to date, and falling to a near-five-year low at the time of writing.

The logistics giant has been grappling with multiple challenges over the last several years, adjusting to excess post-pandemic capacity and sluggish shipping demand. While the company has a plan in place to address its shifting operating environment to support more profitable growth, a big headwind looms. Sweeping trade tariffs being implemented by the Trump administration have some major implications for UPS' business and its stock price outlook.

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Let's discuss what tariffs mean for UPS investors now.

UPS trade tariff fallout

After months of back-and-forth messaging, the Trump administration unveiled specifics of a transformative new trade policy on April 2. The United States is imposing a 10% baseline tax on all imports from every country, alongside higher "reciprocal" tariffs ranging from 11% to 50% on 57 specific nations identified by their trade surpluses.

Though these tariffs were telegraphed since Trump's presidential campaign, Wall Street saw the details and extent of the measures as much more aggressive than previously estimated, translating into a steep stock market sell-off. The administration says the measures are aimed at addressing international trade imbalances. Experts anticipate the policies to cause short-term disruptions in supply chains and higher consumer prices as businesses begin to pass along the increased tax burden.

For UPS, the tariff effect is multifaceted:

• Customers using the company's air and freight network for importing goods into the U.S. will face higher costs levied as an import duty. This increase could curb demand for international shipping volumes, a critical revenue driver that accounted for 20% of UPS' $91 billion in total sales last year.
• One detail of the new tariff regime is that it ends a "de minimis" exception directed at Chinese goods, previously allowing duty-free entry for shipments under $800. This exclusion covered significant volumes of direct-to-consumer e-commerce sales for items like apparel and electronics. As a result, UPS may not only see a slowdown in business, but also incur additional costs to comply with customs operations on small parcels.
• The third dynamic to consider is the possibility of retaliatory tariffs representing the response from U.S. trading partners. China has already enacted a 34% retaliatory tariff on all U.S. goods. In this scenario, UPS' U.S. shipping volumes may also slow as international customers reassess their costs and business outlook.

Image source: Getty Images.

UPS first-quarter earnings preview

There's little sugarcoating UPS' tariff hit, but key uncertainties remain. It's too soon to accurately gauge the potential decline in shipping volumes and its earnings effect. On the upside, potential negotiations and trade deals could render any near-term weakness temporary.

The company's upcoming fiscal 2025 first-quarter earnings report for the period ended March 31, set to be released on April 29, will offer an opportunity for UPS to update investors on current conditions. Since the first quarter covered a period that was likely business as usual, with the new tariffs only taking effect in the second quarter, management comments and forward guidance will likely be more important than the headline numbers.

UPS had previously guided for full-year revenue of $89 billion, representing a modest 2.2% decline compared to 2024, while targeting free cash flow of $5.7 billion. The caveat here is that these targets specifically included the note that they did "not reflect any significant potential trade implications due to changes in tariffs," meaning that some downside revisions should be expected.

The full-year free cash flow estimate will be closely watched by the market as a signal of the sustainability of the company's $5.5 billion annual dividend payout. The $1.64 per share quarterly dividend currently yields 6.7% -- a tempting high-income opportunity, but corresponding to the risk that the dividend could be cut in the future without a sustained earnings improvement.

Data by YCharts.

Final thoughts

Despite the tariff turmoil, UPS retains its core strengths, including underlying profitability and industry leadership. Looking beyond the near-term stock market volatility, I believe the company will ultimately emerge stronger.

For current shareholders, continuing to hold the stock makes sense. It's probably too late to sell, with some of the worst-case scenarios possibly already priced into the stock. For investors watching from the sidelines, a wait-and-see approach may be the prudent move.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.