UPS vs. FDX: Which Parcel Delivery Company Holds More Promise Now?

United Parcel Service UPS and FedEx FDX, boasting sizable market capitalizations of $81.4 billion and $63.1 billion, respectively, dominate the Zacks Transportation—Air Freight and Cargo industry. These long-established leaders are the first names that come to mind when discussing parcel delivery and logistics.

Seeing delivery trucks making package drop-offs has become routine, as the two companies handle the overwhelming majority of parcel shipments. With this context, let us examine their fundamentals, growth opportunities and challenges more closely.

The Case for UPS

United Parcel Service has been grappling with revenue weakness for an extended period, as geopolitical uncertainty and elevated inflation continue to weigh on consumer sentiment and growth expectations. Tariff-driven economic uncertainty has only compounded its challenges.

U.S. average daily volumes have declined year over year in the first nine months of 2025. Per Carol Tome, UPS’ chief executive officer, the primary factors behind the decline in U.S. volumes were the planned reduction of Amazon AMZN shipments and a strategic decrease in lower-margin e-commerce volumes.

We remind investors that earlier in the year, UPS’ management reached an agreement in principle with Amazon to lower the latter’s volume by more than 50% by June 2026. According to Tome, Amazon was not its most profitable customer.

In the third quarter of 2025, operating profit at UPS’ International segment declined 12.8% to $691 million, with margins contracting to 14.8% from 18% a year ago. The impact of global trade challenges is evident, particularly in Asia, where volumes dropped sharply. Trade volumes declined 27.1% in the China-U.S. trade lane. The De Minimis exemption expired on Aug. 29. The trade exemption allowed packages containing goods valued at less than $800 to enter the United States without additional taxes. The expiry of the exemption hurt international markets by driving volumes away from the China-US trade lane.

Changes in trade policy led to a decline in export volumes across higher-margin lanes, while lower-margin lanes experienced growth. This unfavorable volume mix weighed on international operating margins and further pressured the company’s forwarding business, reflecting the ongoing challenges posed by global trade realignments.

In February, UPS’ management announced a modest 0.6% increase in the quarterly dividend to $1.64 per share (or $6.56 annually). While this underscores the company’s shareholder-friendly stance, questions about the sustainability of this dividend arise. UPS’ high dividend payout ratio of 87% — the portion of net income distributed as dividends — highlights the concern associated with its ability to maintain dividend payouts over the long term.

We remind investors that in the early 2020s, when UPS’ business was flourishing, driven by exponential e-commerce growth during the peak pandemic period, the company made huge dividend payments. Free cash flow has been on a decline since touching a high of $9 billion in 2022.

UPS' elevated dividend payout is hurting its operational flexibility. In the first nine months of 2025, the company generated only $2.7 billion in free cash flow and paid more than $4 billion in dividends. UPS exited the September quarter with cash and cash equivalents of $6.7 billion against a debt of $24.9 billion, resulting in a debt-to-capital ratio of 61%, which is more than the industry's average of 56%.

The Case for FDX

FedEx is realigning its costs under a companywide initiative called DRIVE, given the post-COVID adjustments in business. These initiatives resulted in annual cost savings of $2.2 billion in fiscal 2025. These cost reduction initiatives include reducing flight frequencies, parking aircraft and cutting staff. For fiscal 2026, management expects to achieve $1 billion of transformation-related savings, which includes DRIVE and Network 2.0.

The company’s efforts to reward its shareholders are commendable. In 2025, FedEx raised its quarterly dividend by 5.1% to $1.45 per share (or $5.80 annually).  FDX is also active on the buyback front. The company has repurchased shares worth $3 billion in fiscal 2025. FDX returned $4.3 billion to its shareholders in fiscal 2025, through dividends and buybacks, exceeding the target of $3.8 billion.

Geopolitical uncertainty, tariff-induced uncertainty and high inflation continue to hurt consumer sentiment and growth expectations. Despite the headwinds, for the full-year fiscal 2026, FedEx expects revenue growth in the range of 4-6% on a year-over-year basis. Earnings per share (adjusted) for fiscal 2026 are expected between $17.20 and $19.

Despite challenges, it is worth noting that the company has the brand and the network to continue generating steady cash flows in the long run. FDX’s endeavors to expand its operations are commendable. Prudent investments enable FDX to extend its services and solidify comprehensive offerings.

FDX exited the first quarter of fiscal 2026 with cash and cash equivalents of $5.1 billion against a debt of $16.5 billion, resulting in a debt-to-capital ratio of 43.2%, which compares favorably to industrial levels as well as UPS. FDX’s lower debt-to-capital ratio implies that it relies less on debt financing and has a stronger equity position.

FedEx recently issued bullish guidance for the second quarter of fiscal 2026 (ending November 30), driven by the holiday season’s rush. The company is projecting higher profits than previously expected. At the Baird Global Industrial Conference, chief financial officer John Dietrich stated that adjusted EPS for the fiscal second quarter is expected to exceed the year-ago value of $4.05.

Price Performance and Valuation

In a year, UPS’ shares have plunged in excess of 29%, underperforming the industrial levels. On the other hand, FDX’s shares have performed comparatively better, declining in single digits in a year and outperforming its industry.

One-Year Price Comparison

UPS is trading at a forward sales multiple of 0.91X, whereas FDX’s forward sales multiple sits at 0.67X, suggesting that UPS’ shares are pricier. FDX  has a Value Score of A, while UPS has a Value Score of B.

End Note

Both FDX and UPS continue to face revenue strains due to weak demand conditions. In response to the soft demand environment, both companies are striving to stimulate growth through cost-cutting, though their strategies diverge. UPS is focusing on automation and robotics to enhance efficiency and reduce dependence on Amazon.com, whereas FedEx has executed a significant restructuring of its Ground and Services divisions.

From a valuation perspective, FDX appears more appealing than UPS. FedEx also outperforms UPS in terms of stock price performance. Additionally, while UPS’ earnings are projected to grow 6.6% over the next five years, FDX’s expected growth rate is higher at 10.1%. FDX’s bullish guidance on profitability and its bottom line for the fiscal second quarter, driven by the holiday season rush, is also encouraging.

FedEx further holds an advantage over UPS when it comes to financial leverage. Considering all these factors, FDX seems the stronger play than UPS at present, despite both stocks carrying a Zacks Rank #3 (Hold).

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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