UPS Margins Under Pressure: Is a Turnaround on the Cards?

It is a well-documented fact that United Parcel Service UPS 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, 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 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.


 

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This article originally published on Zacks Investment Research (zacks.com).

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