This Controversial Decision Is Already Paying Off for UPS Stock

Shares of United Parcel Service (NYSE: UPS) stock have been in a tailspin this year, with concerns mounting about slowing trade and e-commerce weighing on its business. Entering trading this week, the stock price was down around 25% so far in 2025, and it has hit multi-year lows along the way.

The logistics giant recently reported earnings, which gave investors some reason for optimism. UPS posted better-than-expected results, as its business may already be reaping the rewards from a controversial move it announced months earlier.

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UPS previously said it would be cutting back significantly on business with Amazon

It's never a popular move for a company to say that it's looking at reducing volumes and trying to do less. But it can be the right one to make, especially if it means improving margins. Earlier this year, UPS said it would be cutting back on its shipping volumes (by about 50%) with e-commerce giant Amazon in order for it to focus on higher-margin work.

While a decline in revenue can be a concern, if it means stronger margins and leads to a higher rate of profitability, it's a move that can make a whole lot of sense for a business in the long run. Reducing its workload also enables the company to become leaner. In April, UPS announced it was cutting 20,000 jobs (that figure has since risen to 48,000). This is in relation to not only the reductions with Amazon but also broader restructuring and efficiency efforts, as tariffs have been affecting overall demand.

Are the results already paying off?

Last week, UPS posted its most recent quarterly results, and it was a fantastic performance for the business. For the third quarter, which ended on Sept. 30, UPS posted adjusted earnings per share of $1.74, which soundly beat expectations of just $1.30. And its revenue of $21.4 billion was also better than Wall Street projections of around $20.8 billion. This is even as Amazon-related volume has declined by more than 21% on a year-over-year basis. CEO Carol Tome says the business is "executing the most significant strategic shift in our company's history."

Shares of UPS jumped 8% on the day the results came out, as investors looked pleased with the numbers, and rightly so. With the company continuing to focus on efficiency and cost savings, UPS' financials, and specifically its bottom line, may improve even further in future quarters. By focusing on profits rather than sheer revenue growth, management is making moves that I believe will help pay off for shareholders down the road. Particularly at a time when there is so much uncertainty in the economy, it's crucial for UPS to remain flexible and lean.

Is UPS a good stock to buy today?

Although the stock got a bit of a boost after earnings, investors still aren't too willing to pay much of a premium for it. It's trading at a price-to-earnings multiple of just under 13, which is nowhere near the S&P 500 average of 26.

At a low valuation, this can make for a compelling long-term investment to hang on to. What may sweeten the deal for investors is UPS' high dividend yield of 6.8%, which looks a whole lot safer in light of the company's encouraging earnings numbers.

The company is showing that it can make the difficult but important decisions needed to improve its operations, which should inspire confidence from investors that it is going in the right direction. It's a good stock to buy while it remains cheap, because once economic conditions improve (and they eventually will), it could be due for a big rally.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool has a disclosure policy.