A UPS shareholder is taking the parcel delivery service and three of its top execs to court in a class-action lawsuit, alleging they misled investors on the company’s anticipated financial performance ahead of the fiscal year.
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The complaint revolves around the 2024 annual guidance issued by UPS on Jan. 30, which first projected revenue of $92 billion to $94.5 billion for the year on an operating margin between 10 percent and 10.6 percent.
On Oct. 10, plaintiff Lesley Savage accused the defendant of failing to reveal that it was “not truly equipped to handle a surge in volume in lower-profit services without seeing a significant decline in their operating margins” before the company cut both full-year guidance metrics in July.
Without those facts, Savage argues that he and other shareholders purchased UPS stock at “artificially inflated prices.” The company’s stock tanked more than 12 percent to $127.68 per share when UPS revealed the tapered guidance along with its second quarter results.
“Defendants created the false impression that they possessed reliable information pertaining to the company’s projected revenue outlook and anticipated growth while also minimizing risk from seasonality and macroeconomic fluctuations,” the lawsuit writes.
UPS would not comment on the litigation.
CEO Carol Tomé, chief financial officer Brian Newman and executive vice president Nando Cesarone are co-defendants in the suit. Highlighted in the complaint, Cesarone spoke to the logistics company’s ability to handle volume swings during the Jan. 30 earnings call, which presumably would impact margins.
“It is a virtuous cycle. So we’re working ahead of any type of volume variability,” said Cesarone. “So whether it goes up or down, we’ve got some of our best engineers, operations folks, finance folks identifying additional cost outs as we move forward, as we’re executing the ones that we have in front of us. So we feel good that there’s a good pipeline of opportunity no matter what the volume does.”
But the plaintiff argued otherwise.
“In truth, UPS’ optimistic reports of growth, plans to handle volume variability, upcoming profit growth, and consistent claims that the first quarter would present the worst margins of the fiscal year fell short of reality,” said the lawsuit. “The company was not truly equipped to handle a volume surge without causing a corresponding significant decline in their operating margin.”
During the company’s March investor day, Cesarone also said UPS would use “dynamic pricing to attract volume while simultaneously enhancing our margins and balancing our demand by week and by day.”
The plaintiff argues that the statements made in the January and April earnings calls, and during the investor day, directly contrasted those in the July earnings call.
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UPS placed the blame of the reduced guide “on a surge of volume growth,” the suit says, with quotes from Tomé illustrating that the company was seeing more of a shift from the more lucrative air service to the cheaper ground service, thus compressing margins.
In the wake of the guidance cut and the disappointing quarterly earnings in July, J.P. Morgan and Barclays both lowered their price targets for UPS stock.
J.P. Morgan shared concern that UPS “implemented a volume-over-price strategy which drove a significant amount of negative mix shift during the quarter when volumes from new e-commerce customers like Temu soared.”
Savage also pointed to the bank’s observation of the exposure to e-commerce companies like Temu and Amazon, which “seems like a strategic step backwards…The company’s strategy looks like volume now and price later considering record peaking surcharges.”
Barclays had ripped the parcel delivery company for “setting aspirational, yet unattainable, guidance since mid-2023 which we see as continuing into the back half of 2024 following a quite disappointing second quarter.”
The class-action complaint was filed on behalf of all investors who purchased or acquired UPS stock between Jan. 30 and July 22.
The suit’s first count accuses all the defendants of engaging in “a plan, scheme, conspiracy and course of conduct,” in which they knowingly or recklessly engaged in fraudulent or deceitful business.
The second count focuses on the individual defendants—Tomé, Newman and Cesarone—on the grounds that they were “controlling persons” in the company and could control the contents of earnings reports, press releases and public filings.
“In this capacity, they participated in the unlawful conduct alleged which artificially inflated the market price of UPS’ common stock,” the suit read.
As a result of their UPS stock purchases during the period, the plaintiff alleges the class suffered economic losses, including damages under federal securities laws. Savage is demanding a trial by jury.
UPS has its third-quarter earnings call on Thursday, Oct. 24.
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