Shares of package delivery giant UPS (UPS -3.11%) were down by 3.5% as of 1 p.m. today. The sell-off coincides with an overall market decline, but some negative news from Delta Air Lines has also probably affected UPS.
UPS needs consumer and corporate confidence
The transportation company is what’s known as a cyclical company. Demand for its services ebbs and flows with economic activity and the willingness of consumers and corporations to engage in commerce and send and receive packages.
So UPS investors don’t want to see signs of waning confidence among consumers and corporates, but unfortunately, Delta Air Lines has given them some recently.
Delta’s management started the year expecting first-quarter revenue growth in the 7%-9% range. However, speaking at the JPMorgan Industrials event today, Delta’s CEO, Ed Bastian, walked that guidance back to “closer to 4%.”
While part of the decline comes down to the negative impact of a high-profile crash in Washington in January and bad weather, Bastian also noted that “There was something going on with economic sentiment, something going on with consumer confidence” over and above those issues.
Image source: Getty Images.
What it means to UPS investors
These signs of consumer/corporate caution don’t read across well for UPS, and the last thing the company needs is a reduction in small package delivery demand as it navigates a deliberate reduction in Amazon.com delivery volumes.
Still, it’s far too early to discern whether this is a trend, and consumer/corporate confidence can return just as quickly as it goes away with more certainty around the economic environment and tariffs.
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