Parcel delivery company UPS (NYSE:UPS) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, but sales were flat year on year at $21.55 billion. Its non-GAAP profit of $1.49 per share was 8.2% above analysts’ consensus estimates.
Revenue: $21.55 billion vs analyst estimates of $21.1 billion (flat year on year, 2.1% beat)
Adjusted EPS: $1.49 vs analyst estimates of $1.38 (8.2% beat)
Adjusted EBITDA: $2.68 billion vs analyst estimates of $2.59 billion (12.4% margin, 3.4% beat)
Operating Margin: 7.7%, in line with the same quarter last year
Free Cash Flow Margin: 6.7%, down from 10.5% in the same quarter last year
Sales Volumes fell 3.5% year on year (-5.1% in the same quarter last year)
Market Capitalization: $81.2 billion
StockStory’s Take
United Parcel Service’s first quarter results reflected management’s focus on reshaping its business mix and driving profitability amid ongoing volume declines. Consolidated revenue was flat year-over-year at $21.5 billion, while adjusted EPS rose 4.2% to $1.49. Consolidated operating margin improved 20 basis points to 8.2%, driven by a 110 basis point expansion in U.S. Domestic margin to 7.0%, despite a 3.5% drop in total U.S. Average Daily Volume (ADV). CEO Carol Tome highlighted the accelerated reduction of specific Amazon volumes and new cost-reduction initiatives as key to offsetting softer demand, especially among small and midsize business (SMB) customers.
Key Insights from Management’s Remarks
Management attributed first quarter performance to a blend of network transformation initiatives and shifting customer demand patterns. While headline financials met or exceeded expectations, underlying business dynamics were shaped by both internal strategic actions and external headwinds.
Amazon Volume Reduction: Management accelerated its plan to reduce specific, non-profitable Amazon fulfillment center outbound volume, aligning this glide-down with a large-scale network reconfiguration. This shift is designed to improve overall margin quality and reduce reliance on low-yield volume.
Network Automation and Closures: UPS is undertaking its largest network reconfiguration ever, aiming to complete 164 operational closures (including 73 building closures) by the end of June. Automation investments are increasing, with a long-term goal of having 400 partially or fully automated facilities, which management expects will lessen labor dependency and enhance scalability.
Product and Customer Mix Shift: The company replaced its SurePost offering with Ground Saver, a new economy service designed to give operational flexibility and better margins. B2B (up 1.5%) and healthcare saw positive volume trends, while B2C (down 7%) and Ground Saver (down 8.4%) volumes declined, reflecting a strategic focus on higher-revenue segments and specific pricing actions.
Healthcare Logistics Expansion: UPS announced an agreement to acquire Andlauer Healthcare Group, adding specialized logistics capabilities in Canada. This move is part of its broader goal to become the top complex healthcare logistics provider globally.
Tariff and Trade Policy Exposure: Management is closely monitoring U.S.-China tariff changes. While only a small percentage of global volume is exposed (<2% of total global ADV from U.S. imports), the China-to-U.S. trade lane is highly profitable (11% of International revenue), and potential shifts in supply chain sourcing could impact both volume and revenue distribution in future periods.
Drivers of Future Performance
Management’s outlook for the coming quarters is defined by its continued cost-cutting actions, evolving trade policies, and efforts to shift toward more resilient, higher-margin business segments.
Cost Structure Transformation: The company is executing a $3.5 billion cost-reduction program targeted for completion within 2025, driven by network reconfiguration, automation, and the Efficiency Reimagined initiative (expected to deliver $1 billion in annual savings by 2026). Management expects these efforts to structurally improve operating margins, especially as less profitable Amazon volume exits.
Tariff and Trade Uncertainty: The outcome of pending U.S.-China tariffs and changes to customs thresholds remain major unknowns. Management notes that SMB customers, often single-sourced from China, are particularly vulnerable and will be disproportionately pressured by these changes, which could depress demand or shift trade flows, with the ultimate impact still unclear.
Healthcare and International Growth: UPS is prioritizing healthcare logistics—which management views as more resilient to economic cycles—and expansion in international markets. Investments in automation, digital brokerage, and new service offerings are expected to support growth in these areas, even as traditional e-commerce volumes remain pressured.
Top Analyst Questions
Tom Wadewitz (UBS): Sought clarity on how the $3.5 billion in cost savings aligns with the pace of Amazon volume reductions and whether cost takeout will fully offset lost revenue. Management stated that structural changes should drive margin improvement and that Efficiency Reimagined savings are incremental to those tied to Amazon.
Ariel Rosa (Citigroup): Asked about progress and expectations for automation and robotics in the network. Management detailed plans for 400 automated facilities and emphasized the role of automation in reducing labor dependency and increasing operational efficiency.
Scott Group (Wolfe Research): Questioned why domestic margin improvement is expected to slow in Q2 despite ramping cost savings. Management cited increased uncertainty for SMBs from tariffs and "chaos costs" related to building closures as near-term margin pressures.
Jordan Alliger (Goldman Sachs): Inquired about long-term volume growth expectations excluding Amazon and the impact of supply chain shifts away from China. Management pointed to resilient healthcare growth and the flexibility of its global network to adapt to changing trade patterns.
Ken Hoexter (Bank of America): Asked about the impact of de minimis changes and inventory drawdowns on volumes, and whether a quick reversal is possible if tariff uncertainties resolve. Management explained that while inventory reductions could weigh on near-term volumes, shifts in trade lanes and sourcing may mitigate long-term effects.
Catalysts in Upcoming Quarters
In upcoming quarters, key catalysts include (1) the pace and execution of UPS’s network reconfiguration, including 164 operational closures by end of June, and automation initiatives, (2) the impact of new U.S.-China tariffs and potential supply chain relocations on both domestic and international volumes, particularly for SMBs, and (3) continued progress in healthcare logistics, highlighted by the Andlauer acquisition, and international market expansion. The ability to offset the planned Amazon volume reductions with higher-margin segments will also be a key indicator of sustainable earnings growth and margin improvement towards stated goals.
United Parcel Service currently trades at a forward P/E ratio of 12.5×. In the wake of earnings, is it a buy or sell? Find out in our free research report.
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