In short: The yield-trap case study: treated the COVID shipping boom as the new normal and raised the dividend 40–50% in one year; earnings normalized, the union deal was harder than expected, and the yield is high "because nobody believes it's sustainable" — now token increases to keep aristocrat status.
UPS is his textbook yield trap. During COVID, package volumes boomed and management treated that as normal, raising the dividend 40–50% in a single year. Then volumes and earnings came back down and a tough union contract raised costs, leaving little room. The dividend now barely grows, just enough to keep its "Dividend Aristocrat" record (a company that has raised its dividend every year for decades).
The high yield isn't a bargain signal: it's high because the price fell, and the price fell because investors doubt the payout can last. His lesson is to make sure a dividend can still be paid in 10 years at a realistic earnings growth rate.
12:58And in that upcycle, it's very easy for a company and a management team to start to think this is the new normal, this level of growth, these margins. We saw a lot of that in the pandemic and in COVID. I'm thinking about a company like UPS, — you know, UPS obviously big dividend yield, right? That company had a boom in shipment and volumes during COVID, well, you know, they started to think that that was a more normal level of business and they bumped their dividend a significant amount, 40 50% in one year.
In short: The reset lands. Q2 revenue +8% Y/Y to $22.8B ($960M beat) and adjusted EPS +14% to $1.76 ($0.10 beat) — after years of declines, UPS finally posted top-line and adjusted operating-profit growth in the same quarter. GAAP profit still fell from $1.51 to $0.71 on an $891M workforce-cut charge, compressing GAAP operating margin to 4.1% (−450 bps). CEO Carol Tomé's 18-month Amazon glide-down is essentially complete, with Amazon now 9% of revenue, down from a pandemic peak above 13%; UPS removed about 2 million daily pieces of lower-quality volume and $4.5B of expenses, pivoting to premium: healthcare cleared $3B of revenue for a second straight quarter (lifted by refrigerated GLP-1 shipments), automation now handles 68.5% of US volume at roughly 28% lower cost per piece than non-automated buildings, US Domestic operating profit rose more than 20%, and the China-to-US lane returned to growth in May. FY26 guidance raised across the board — revenue ~$91.2B (vs ~$90.4B) and adjusted EPS ~$7.22 (vs ~$7.13) — reversing Q1's flat guide, with ~8.8% US Domestic operating margin targeted in the second half. The back half is where the operating leverage should show. (Recap, not a stance call.)
UPS spent 18 months deliberately shrinking — walking away from about 2 million parcels a day of low-margin Amazon volume, cutting $4.5 billion of costs and a large slice of its workforce. This is the first quarter where revenue and operating profit both grew again, which suggests the reset worked. Amazon is now 9% of revenue, down from over 13% at the peak. What replaces it is higher-value freight: healthcare shipping passed $3 billion for the second quarter running, helped by refrigerated weight-loss drugs, and automated buildings now handle 68.5% of US volume at roughly 28% lower cost per parcel. The reported profit still looks awful because of an $891 million charge for the job cuts — that's a one-off. With the shrinking done and the costs booked, the second half is where the efficiency should finally show up in profit. A recap, not a call.
In short: Behind FedEx — still restructuring after over-relying on Amazon, which pressured pricing; "where FedEx was a few years ago." Doesn't own it.
31:49I don't know. But I mean, I think UPS is also similarly had a bunch of problems, you know, with and they were a big supplier to Amazon, right? So, I think they're also they're where FedEx was a few years ago and sort of kind of restructuring their businesses.
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