Parcel delivery company UPS (NYSE: UPS) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales fell by 3.7% year on year to $21.42 billion. The company expects next quarter’s revenue to be around $24 billion, close to analysts’ estimates. Its non-GAAP profit of $1.74 per share was 33% above analysts’ consensus estimates.

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StockStory’s Take

UPS’s third quarter saw the company surpass Wall Street’s revenue and profit expectations, driving a positive market reaction. Management attributed the quarter’s results to a deliberate shift in customer and product mix, as well as ongoing cost reduction initiatives. CEO Carol Tomé cited a “planned glide down of Amazon volume and a targeted reduction in lower-yielding e-commerce volume” as the main reasons for falling U.S. package volume, alongside strategic efforts to drive higher revenue per piece. The company’s automation investments and success in controlling expenses helped offset top-line pressure from both lower volumes and new trade policy headwinds.

Looking ahead, UPS’s outlook is shaped by ongoing network transformation, further automation, and the evolving impact of recent trade policy changes. Management expects the Amazon volume transition and operational enhancements to support higher margins and free cash flow, while cautioning that trade pattern shifts and new tariffs could continue to pressure certain international lanes. CFO Brian Dykes noted, “As we complete the Amazon glide down and continue to invest in automation, we expect to drive better returns and margins.” UPS is also preparing for a busy peak shipping season, with guidance reflecting stable volumes from top enterprise customers and a cautious view on small business trends given ongoing tariff effects.

Key Insights from Management’s Remarks

Management highlighted that execution on cost reduction, network reconfiguration, and revenue quality initiatives helped UPS exceed expectations despite declining volumes and challenging trade dynamics.

• Amazon volume transition: UPS continued its planned reduction of Amazon-related deliveries, shifting focus toward higher-yielding customers and services. The company noted that while total Amazon volume declined, it grew more profitable segments such as returns and small business seller fulfillment, supporting revenue quality.
• Network reconfiguration progress: The company closed 93 buildings and eliminated 34,000 operational positions year-to-date, as part of its largest network overhaul. Management emphasized that these actions, alongside automation in 35 facilities, drove tangible expense reductions and improved productivity metrics to the best levels in over a decade.
• Trade policy and customs impact: UPS navigated a surge in customs processing complexity following the elimination of the de minimis exemption for U.S. imports. Advanced AI-driven brokerage systems enabled the company to clear 90% of dutiable packages digitally, helping absorb regulatory changes without adding significant cost but pressuring international volume mix and margins.
• SMB and healthcare growth: Small and medium-sized business (SMB) volumes declined modestly, but UPS took market share and found strength in SMB healthcare and automotive segments. Revenue from healthcare logistics grew, and the company advanced its acquisition of Andlauer Healthcare Group to bolster its offerings.
• Ground Saver and USPS partnership: UPS reached a preliminary agreement with the United States Postal Service (USPS) to support last-mile delivery for its Ground Saver product. This partnership is expected to address cost challenges related to low-density residential deliveries and improve service efficiency moving forward.

Drivers of Future Performance

UPS’s forward outlook is driven by ongoing cost actions, the continued Amazon volume transition, and changes in global trade policy.

• Peak season dynamics: UPS expects a robust holiday shipping period, with top 100 enterprise customers forecasting a 60% surge from current volume levels. However, small business shipping activity remains slightly below last year, and management is taking a cautious stance on SMB recovery given new tariff impacts.
• Continued network automation: Investments in automation and the Network of the Future initiative are projected to increase efficiency and reduce reliance on seasonal labor, vehicles, and leased assets. Management anticipates 66% of volume to move through automated processes in the fourth quarter, supporting margin expansion.
• Trade and regulatory headwinds: Recent tariff changes and the elimination of the de minimis exemption are reshaping trade flows, particularly reducing high-margin China-U.S. volumes. Management expects these shifts to continue pressuring international margins in the near term, with some permanent changes in trade patterns likely unless policy reversals occur.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) the pace and financial impact of Amazon volume reduction and related cost takeout, (2) progress with UPS’s automation and network reconfiguration projects, and (3) the evolution of trade patterns and tariff-related headwinds, especially on high-margin international lanes. Execution on the USPS partnership and the integration of Andlauer Healthcare Group will also be key signposts for UPS’s ability to offset volume declines and drive margin improvements.

United Parcel Service currently trades at $96, up from $89.27 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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