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UPS Facing Challenges Amid Reduced Package Volume
United Postal Service (NYSE: UPS) is currently trading around $100, a level not seen since before the pandemic, amid decreased package volume and investor concerns. The company is set to release its earnings report on July 29, with expectations of a potential miss or dividend cut, given its unusually high dividend yield of 6.6%, the highest ever.
UPS is implementing a $3.5 billion cost reduction plan, which includes closing 73 facilities and reducing about 20,000 jobs. In Q1, adjusted operating margins increased, with U.S. domestic margins at 7% and international at 15%, although package volume has declined. Additionally, the company plans to cut its relationship with Amazon by 50% by mid-2026, aiming to focus on more profitable customers.
UPS generated approximately $1.5 billion in free cash flow in Q1, while committing around $5.5 billion to dividends for the year. A dividend cut could potentially reinvest in critical areas like automation and fleet upgrades, which are essential for long-term competitiveness.
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