We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
UPS Margins Under Pressure: Is a Turnaround on the Cards?
Read MoreHide Full Article
Key Takeaways
UPS Q2 2025 revenues fell 2.7% year over year amid weak demand and global uncertainties.
Operating margin dropped to 8.8% from 9.5%, with daily volumes down 7.3% in the quarter.
UPS cut Amazon business by over 50% by 2026, as the customer was less profitable.
It is a well-documented fact that United Parcel Service (UPS - Free Report) is suffering from revenue weakness. Revenue softness is basically stemming from the weak demand scenario due to the tariff-related uncertainty, high inflation and other geopolitical woes. In the June quarter, revenues decreased 2.7% year over year.
In the second quarter of 2025, consolidated operating margin was 8.8% well below the 9.5% recorded a year ago. Volumes declined due to the revenue weakness. In the second quarter of 2025, average daily volume declined 7.3% year over year. Due to the uncertainty, UPS did not give any revenue or operating profit guidance for 2025. Despite the cost-cutting efforts of UPS, labor costs (expenses on compensation and benefits) increased in the second quarter of 2025 on a year-over-year basis. This, coupled with the revenue weakness, has been pressurizing margins.
Apart from the tariff-induced economic uncertainties, UPS’ decision to reduce business with its largest customer, Amazon (AMZN - Free Report) , contributed to the revenue woes. UPS’ management has reached an agreement in principle with Amazon to lower the latter’s volume by more than 50% by June 2026. According to the UPS CEO, Amazon was not its most profitable customer.
Even though operating costs are expected to be low going forward, given the company’s cost-cutting efforts, revenue woes are unlikely to go away any time soon. We expect adjusted operating expenses to decline 2.7% year over year in 2025. Revenues are expected to decline 4.7% in 2025 on a year-over-year basis. Due to the revenue weakness, the adjusted operating margin is expected to decline significantly in 2025. Our estimate for the metric represents a 16.2% year-over-year decline.
UPS’ rival FedEx (FDX - Free Report) is also suffering from the weak demand scenario. FedEx is cutting costs to counter top-line woes. For full-year fiscal 2026, FedEx anticipates permanent cost reductions of $1 billion in transformation-related savings from structural cost reductions and the advancement of Network 2.0.
UPS’ Price Performance, Valuation & Estimates
Shares of UPS have declined in excess of 30% so far this year, underperforming its industry.
Image Source: Zacks Investment Research
From a valuation standpoint, UPS trades at a 12-month forward price-to-earnings ratio of 11.81X, just below industrial levels.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for UPS’ third-quarter, fourth-quarter, full-year 2025 and full-year 2026 earnings has been revised downward over the past 60 days.
Image: Bigstock
UPS Margins Under Pressure: Is a Turnaround on the Cards?
Key Takeaways
It is a well-documented fact that United Parcel Service (UPS - Free Report) is suffering from revenue weakness. Revenue softness is basically stemming from the weak demand scenario due to the tariff-related uncertainty, high inflation and other geopolitical woes. In the June quarter, revenues decreased 2.7% year over year.
In the second quarter of 2025, consolidated operating margin was 8.8% well below the 9.5% recorded a year ago. Volumes declined due to the revenue weakness. In the second quarter of 2025, average daily volume declined 7.3% year over year. Due to the uncertainty, UPS did not give any revenue or operating profit guidance for 2025. Despite the cost-cutting efforts of UPS, labor costs (expenses on compensation and benefits) increased in the second quarter of 2025 on a year-over-year basis. This, coupled with the revenue weakness, has been pressurizing margins.
Apart from the tariff-induced economic uncertainties, UPS’ decision to reduce business with its largest customer, Amazon (AMZN - Free Report) , contributed to the revenue woes. UPS’ management has reached an agreement in principle with Amazon to lower the latter’s volume by more than 50% by June 2026. According to the UPS CEO, Amazon was not its most profitable customer.
Even though operating costs are expected to be low going forward, given the company’s cost-cutting efforts, revenue woes are unlikely to go away any time soon. We expect adjusted operating expenses to decline 2.7% year over year in 2025. Revenues are expected to decline 4.7% in 2025 on a year-over-year basis. Due to the revenue weakness, the adjusted operating margin is expected to decline significantly in 2025. Our estimate for the metric represents a 16.2% year-over-year decline.
UPS’ rival FedEx (FDX - Free Report) is also suffering from the weak demand scenario. FedEx is cutting costs to counter top-line woes. For full-year fiscal 2026, FedEx anticipates permanent cost reductions of $1 billion in transformation-related savings from structural cost reductions and the advancement of Network 2.0.
UPS’ Price Performance, Valuation & Estimates
Shares of UPS have declined in excess of 30% so far this year, underperforming its industry.
From a valuation standpoint, UPS trades at a 12-month forward price-to-earnings ratio of 11.81X, just below industrial levels.
The Zacks Consensus Estimate for UPS’ third-quarter, fourth-quarter, full-year 2025 and full-year 2026 earnings has been revised downward over the past 60 days.
UPS’ Zacks Rank
UPS currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.