UPS Upgrades Revenue and Profit Forecasts
United Parcel Service raised its full-year revenue and earnings forecasts after returning to growth on stronger demand in the U.S. market.
The company completed its plan to reduce the number of low-margin packages it delivers for Amazon, allowing it to focus on more profitable parts of its business.
Despite the improved outlook, UPS shares fell nearly 5% as investors questioned whether the company could achieve its ambitious second-half targets.
Cost-Cutting Strategy Supports UPS Outlook
UPS has been restructuring its operations by closing facilities, reducing its workforce and improving efficiency across its delivery network.
The company aims to generate approximately $3 billion in cost savings by 2026.
UPS now expects annual revenue of $91.2 billion, up from its previous forecast of $89.7 billion.
Full-year adjusted earnings are expected to reach $7.22 per share.
UPS Reduces Reliance on Amazon Deliveries
UPS has been replacing lower-margin Amazon shipments with more profitable deliveries.
These include business-to-business packages and temperature-controlled pharmaceutical shipments.
The company previously described its Amazon business as highly damaging to profit margins.
Amazon accounted for around 9% of UPS revenue during the quarter, down approximately one percentage point from the previous year. That figure has fallen significantly from a peak of more than 13%.
International Shipments Expected to Support Growth
UPS expects revenue to remain broadly unchanged during the current quarter.
However, the company believes that higher-margin international air shipments will support performance during the important year-end holiday season.
Executives said package volumes on the profitable China-to-U.S. shipping route had returned to growth.
The improvement followed the U.S. decision to remove duty-free treatment for low-value imports, including packages linked to Chinese online retailers such as Shein and Temu.
UPS Expects Domestic Margins to Improve
Chief Executive Carol Tomé said UPS expects margins in its U.S. domestic business to improve during both the third and fourth quarters.
The domestic division remains the company’s largest operation.
However, analysts questioned whether UPS could deliver the significant profit acceleration included in its forecasts.
Stephens analyst Bascome Majors noted that UPS expects a larger-than-usual increase in operating profit during the second half of the year compared with the first half.
Chief Financial Officer Brian Dykes said the company’s first-half performance had increased management’s confidence in its current momentum.
UPS Shares Fall Despite Strong Results
UPS shares declined 4.8% to $107.53 following the announcement.
Shares in rival delivery company FedEx also slipped by approximately 0.5%.
The market reaction suggested that investors remained cautious about the outlook, particularly as tariffs and inflation continue to affect global trade and consumer spending.
International Business Delivers Higher Margins
UPS reported an adjusted operating margin of 8% in its U.S. domestic business during the second quarter.
Its international division recorded a much stronger margin of 12.4%, highlighting the greater profitability of its smaller overseas operation.
Evercore ISI analyst Jonathan Chappell said continued margin improvement in the U.S. business could increase investor confidence in the company’s restructuring strategy.
UPS Earnings Beat Wall Street Estimates
UPS reported adjusted earnings of $1.76 per share for the quarter ending June 30.
That result exceeded the average analyst forecast of $1.66 per share.
Second-quarter consolidated revenue reached $22.83 billion, also beating the consensus estimate of $21.81 billion.
Higher Package Volumes Support Performance
UPS benefited from fuel surcharges, which helped protect profit margins from rising energy costs.
Stronger package volumes also contributed to higher shipping yields and supported the company’s quarterly performance.
However, UPS has warned that prolonged fuel-price inflation could reduce consumer spending in the U.S. and weaken demand for deliveries across its network.
