UPS Is Firing Its Biggest Customer -- And Wall Street Finally Understands Why

Investors were not pleased with UPS (NYSE: UPS) in early 2025 when the company announced plans to reduce deliveries for Amazon by more than 50% by late 2026. The move would lead to a full-year revenue decline and force a broad restructuring of the company's delivery network to account for the reduction in package volume.

With the plan now well underway, the stock market is finally getting on board. UPS stock rose on Tuesday morning after the company beat expectations for the fourth quarter and announced sweeping job cuts related to the Amazon wind-down. While UPS's revenue sank in the fourth quarter, the benefits of dumping Amazon are becoming apparent.

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The end of a one-sided arrangement

In 2024, Amazon accounted for 11% of UPS's revenue but between 20% and 25% of U.S. network volume. Amazon was the company's largest customer, but not the most profitable. The low-margin Amazon packages helped fill UPS's planes and trucks, but they were hurting the company's profit margins.

In 2025, UPS reduced Amazon volume by 1 million pieces per day. The plan for 2026 is to knock off another 1 million pieces per day, bringing the Amazon business down to a level that makes more economic sense for the company. UPS closed 93 buildings in the U.S. last year as part of this plan, consolidating its network into fewer facilities. These building closures, along with other initiatives, delivered $3.5 billion in cost savings.

UPS eliminated 48,000 positions in 2025, including a reduction of 15,000 seasonal positions, resulting in 26.9 million fewer labor hours compared to 2024. Another 30,000 job cuts are planned for 2026, along with 24 additional building closures. These moves should reduce labor hours by another 25 million.

While U.S. average daily volume declined by 10.8% in the fourth quarter due to the Amazon plan, revenue per piece rose by 8.3%. Adjusted operating profit declined slightly, but adjusted operating margin improved. UPS reported an adjusted operating margin for the U.S. segment of 10.2% in the fourth quarter of 2025, up from 10.1% in the prior-year period. That improvement came despite unusual costs associated with grounding a portion of its aircraft fleet.

A path to profit margin growth

The path forward will be bumpy for UPS, with revenue declines from the Amazon plan and costs associated with closing facilities and finishing the network reconfiguration weighing on results. For 2026, the company expects an overall adjusted operating margin of 9.6%, down a bit from 9.8% in 2025.

This outlook is notably lower than UPS projected back in mid-2024. During an investor and analyst conference, the company forecast an adjusted operating margin of at least 13% and substantially higher revenue than its current outlook. That was before the company kicked off its plan to drop most of Amazon's business, and it will now take longer to reach those targets.

In the long run, generating more revenue per piece and reducing costs across its network can drive operating margin expansion. UPS is calling 2026 an inflection point, with the U.S. business expected to improve meaningfully in the second half of the year once the Amazon plan has been completed. With a big chunk of low-margin revenue out of the picture, the worst will be over.

UPS's deliberate downsizing has been painful for investors, as the stock has tumbled from its multi-year high. But the light at the end of the tunnel is now visible, and UPS is positioned for healthy growth and margin expansion in 2027 and beyond.

Timothy Green 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.