By Esther Fung

UPS boss Carol Tomé is under pressure to reverse a long slump in the company's stock price, especially from employees and retirees, who have outsize say under the company's unique shareholder structure.

The package-delivery giant's shares have tumbled roughly 40% over the past three years, including its biggest single-day dive Thursday after it said it would shrink its business with Amazon.com.

The slump has created tensions among investors, especially UPS alumni who collectively have seen billions of dollars of their wealth evaporate and who control 63% of the voting power.

"I'm not very happy with the stock price," said Ed Baranek, a former pricing manager who spent 37 years at the company. Like many UPS veterans, Baranek took some of his compensation over the years in the form of special Class A shares with supervoting rights.

"I have concerns on the shrinking-to-greatness approach with the loss of Amazon volume," said Baranek, who owns Class A shares worth about $100,000. He said that UPS may face more volume declines after recently raising prices for delivery of nonurgent residential packages.

UPS's latest results didn't give investors much to cheer about. The company said its revenue in 2025 would come in about $6 billion below analyst forecasts after it decided to halve the amount of packages it handles for Amazon, its biggest customer.

Tomé said UPS wants to wean itself from Amazon because profit margins on that business are tight and eat into its profitability.

"Our future is very bright," Tomé told investors on Thursday. "We are not shrinking."

Insiders with special shares

Dual-class shares are typically used by founders to reserve voting power for themselves and their families. UPS, which was started in 1907 and went public 92 years later, reserved its Class A shares for managers and employees.

At the time of the IPO, employees and retirees held 99% of the voting power. (Each Class A share gets 10 votes and publicly traded Class B shares get one vote.) The company says the Class A shares, which existed before the IPO, are meant to further its culture and ownership mindset.

Employees and retirees can only sell their Class A shares within the company, after fulfilling certain requirements such as holding them for at least two years. As of Oct. 16, there were around 122 million Class A shares and 731 million Class B shares outstanding.

UPSers take pride in their decadeslong careers. Many started off as part-time package handlers and then climbed the ranks. There are about 157,000 holders of Class A shares.

"We have seen several layoffs, but the stock price has not changed," said Jose Maria Odriozola Cuende, a former UPS vice president whose last posting was in the Netherlands. "The sacrifice and effort are not getting any payback."

Odriozola, who worked at UPS for 38 years and across six countries, was among those laid off last year. The 61-year-old said he is holding on to his Class A shares and hoping for a change in UPS's leadership.

"UPS needs to go back to its roots," said Odriozola, who added that UPS became more oriented toward taking care of costs rather than customers. Tomé "needs to leave the company with someone who knows the company better."

In a statement, UPS said that its leadership is "taking swift and decisive action to drive profitable growth" and that a "customer-first mindset will continue to fuel us as we grow."

First outsider CEO

Tomé is the first outsider to lead UPS. She was a longtime finance chief at Home Depot and a UPS board member. She took over in the middle of the Covid pandemic and revamped the business model to focus on shipping more-profitable packages rather than on volume gains.

Profits soared when people shopped online during the pandemic, and investors cheered Tomé's financial acumen. But as the pandemic waned, parcel volumes slowed and profit margins suffered.

UPS shares have been under extra pressure since Tomé signed a five-year labor contract with the Teamsters in July 2023, boosting starting pay for part-timers as well as wages for existing workers.

To trim costs, UPS last January said it would lay off 12,000 workers worldwide, primarily managers. The company has since carried out more rounds of layoffs and sold off some business lines.

But its biggest change came this week when the company decided to pull back aggressively from its Amazon contract, which accounted for roughly 12% of its revenue in 2023.

Amazon provides millions of packages to fill UPS trucks, but the e-commerce giant has also built out its own local delivery network and has been increasingly handling more of its own volumes. Analysts say the low profitability of the massive contract has pressured UPS's profit margins, and several of them welcomed the company's decision.

"While this splinter will be painful to dig out, we surmise this move is a positive in the long run," Tyler Brown, analyst at Raymond James, said in a research note.

FedEx, too, has cut ties with Amazon and has been under pressure to boost returns, including from activist DE Shaw. Since Fred Smith stepped down as CEO in 2022, FedEx has been combining its two main delivery operations and decided to spin off its freight trucking division.

As it sheds Amazon packages, UPS plans to reconfigure its U.S. network with expected cuts to labor hours and the size of its vehicle and aircraft fleets. The company expects to generate $1 billion in savings from the revamp.

UPS executives said they are willing to take a short-term hit to revenue so the company can pivot to "complex logistics" such as in healthcare and business-to-business deliveries, where it can charge premium rates.

"Amazon is our largest customer, but it's not our most profitable customer," Tomé said on Thursday.

--Dean Seal contributed to this article.

Write to Esther Fung at esther.fung@wsj.com

(END) Dow Jones Newswires

February 01, 2025 05:30 ET (10:30 GMT)

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