FedEx and UPS: Tariffs’ Threat to Retail and Industrial End Markets a Key Factor to Watch
We expect to our lower fair value estimates by 3%-6% for both firms.
President Donald Trump announced sweeping tariffs on all US imports. For the US parcel carriers, the key threat is tariffs’ impact on macroeconomic growth in terms of consumer goods spending (for business-to-consumer package volumes) and industrial production (for business-to-business volumes).
Why it matters: E-commerce growth has been a tailwind for the integrators’ domestic and international B2C package volumes, while B2B activity has been sluggish due to soft industrial end-market demand.
- We’ve been expecting US industrial production to flip positive this year, yielding modest recovery for B2B package volumes. In addition to self-help, a modest B2B rebound has been a key driver of our 2025 margin improvement assumptions, especially for UPS.
- However, there have been some signs (including a sequential softening in the March US purchasing managers index) that recovery for the US industrial sector—and thus B2B volumes—might take longer than we anticipated.
The bottom line: We expect to lower our fair value estimates for wide-moat UPS UPS and narrow-moat FedEx FDX by 3%-6% due to the tempering of our near-term volume and margin assumptions on a longer recovery period for B2B activity and related gains in operating leverage.
- Our forecast adjustments primarily stem from continued soft industrial sector trends and our concern that US tariff action may be tempering sentiment across the goods-producing sector, which would delay B2B package volume recovery.
- We’re not currently assuming tariffs translate into substantial declines in industrial production or consumer spending, thus we see additional downside risk to our model assumptions. We will be listening closely to first-quarter conference calls in April for greater insights into these factors.
Long view: Risk remains elevated, but we still see longer-term upside opportunity to UPS’ shares as the firm rationalizes network capacity in accordance with Amazon-related volume declines and once B2B package activity recovers.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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