UPS Margins Show Growth Despite Revenue Woes: Scope for More Upside?

United Parcel Service UPS is widely recognized to be facing a period of revenue weakness. This softness is largely caused by subdued demand resulting from tariff-related uncertainty, elevated inflation and broader geopolitical challenges. In the September quarter, the company’s revenues declined 3.7% from the year-ago level.

Despite subdued revenues, the adjusted operating margin has been increasing, driven mainly by the company’s prudent cost-management efforts. In the third quarter of 2025, consolidated adjusted operating margin was 10% well above the 8.8% recorded in the second quarter of 2025 and the year-ago figure of 8.9%. The margin improvement in the September quarter was driven by high domestic margins on the back of a 9.8% uptick in revenue per piece.

Earlier in the year, UPS announced its decision to reduce business with its largest customer, Amazon AMZN. 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. At the end of the third quarter of 2025, the expense reduction related to Amazon glidedown was $2.2 billion, with $3.5 billion targeted by year-end.

Driven by its expense management efforts, UPS expects adjusted operating margin to be even higher, in the 11-11.5% band in the final quarter of 2025. Our estimate for the metric in the fourth quarter is 11.5%. UPS expects revenues in the U.S. Domestic segment to be $16.2 billion, with adjusted operating margin in the 9.5-10% band. Our estimate is currently pegged at 10%. The expectation is much higher than the 6.4% recorded by the segment in the third quarter of 2025.

UPS’ rival FedEx FDX is also suffering from the weak demand scenario. FedEx is cutting costs to counter top-line woes. In the first quarter of fiscal 2026, FedEx achieved its targeted $200 million in transformation-related savings and grew adjusted operating income by 7%. FedEx expects adjusted operating income to be $6 billion in fiscal 2026.

UPS’ Price Performance, Valuation & Estimates

Shares of UPS have declined in excess of 6% over the past six months, underperforming its industry.

6-Month Price Comparison

From a valuation standpoint, UPS trades at a 12-month forward price-to-earnings ratio of 13.16X, nearly in line with industrial levels.

The Zacks Consensus Estimate for UPS’ full-year 2025 and 2026 earnings has remained stable over the past seven days.

UPS’ Zacks Rank

UPS currently carries 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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