UPS slashes Amazon exposure in hit to 2025 forecasts

United Parcel Service on Thursday forecast downbeat 2025 revenue as it cuts back deliveries for its largest customer, Amazon, in an already challenging environment for the parcel delivery giant.

Shares of UPS fell about 13% in premarket trading after the company, without naming Amazon, said it had reached an agreement with its "largest customer" to cut transported volumes by more than 50% by the second half of next year.

The move surprised some analysts and comes during a difficult period for UPS as the company grapples with persistent weakness in parcel demand post-pandemic and a flood of low-profit shipments from bargain e-commerce sellers such as Temu and Shein.

Amazon and its affiliates accounted for about 11.8% of UPS's overall revenue in 2023.

"The agreement with Amazon to reduce volumes by more than 50% in 18 months is a surprise and acceleration of the glide down of this business that has long represented a tail risk," Evercore ISI analyst Jonathan Chappell said in a note.

Still, UPS said carrying less freight for Amazon will eventually boost its revenue per piece.

"We are making business and operational changes that, along with the foundational changes we’ve already made, will put us further down the path to becoming a more profitable, agile and differentiated UPS," said CEO Carol Tome.

The parcel delivery giant said it was reconfiguring its U.S. network, and launching multi-year efficiency initiatives that would result in savings of about $1 billion.

UPS forecast 2025 revenue of $89 billion, compared with analysts' average estimate of $94.88 billion, according to data compiled by LSEG.

It also forecast full-year consolidated operating margin at 10.8%, an increase from the 9.8% it reported for 2024.

Fourth-quarter revenue of $25.3 billion missed estimates of $25.42 billion.

UPS reported an adjusted profit of $2.75 per share for the quarter ended Dec. 31, beating estimates of $2.53 per share.