Parcel delivery company UPS (NYSE:UPS) reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales fell by 2.7% year on year to $21.22 billion. Its non-GAAP profit of $1.55 per share was 1% below analysts’ consensus estimates.
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United Parcel Service (UPS) Q2 CY2025 Highlights:
- Revenue: $21.22 billion vs analyst estimates of $20.87 billion (2.7% year-on-year decline, 1.7% beat)
- Adjusted EPS: $1.55 vs analyst expectations of $1.57 (1% miss)
- Adjusted EBITDA: $2.81 billion vs analyst estimates of $2.76 billion (13.3% margin, 1.8% beat)
- Operating Margin: 8.6%, in line with the same quarter last year
- Sales Volumes fell 5.7% year on year (0.1% in the same quarter last year)
- Market Capitalization: $74.1 billion
StockStory’s Take
United Parcel Service’s second quarter saw a negative market reaction, as persistent declines in package volumes and mounting cost pressures overshadowed a modest revenue beat. Management pointed to ongoing challenges from shifting trade policies and soft consumer sentiment in the U.S., leading to a 5.7% year-on-year drop in sales volumes. CEO Carol Tome described the environment as “very volatile,” citing both tariff uncertainty and weak manufacturing activity as primary headwinds. Strategic actions, including the deliberate reduction of Amazon-related business and a network reconfiguration, also contributed to higher-than-expected expenses, particularly from slower-than-modeled employee attrition.
Looking ahead, United Parcel Service’s outlook is clouded by significant uncertainty, as management refrained from issuing forward guidance due to unpredictable tariff impacts and unclear peak season demand. Tome emphasized that “the range of scenarios is wide enough to drive one of our 18 wheelers through,” referencing unknowns around tariff implementation, customer inventory replenishment, and voluntary driver separations. CFO Brian Dykes highlighted that while cost-saving initiatives and network automation are progressing, near-term margins could remain pressured until greater clarity emerges on trade policies and customer plans for the critical holiday period.
Key Insights from Management’s Remarks
Management attributed the quarter's performance to deliberate business mix shifts, macroeconomic headwinds, and execution on strategic cost reduction, while noting persistent pressure from trade and labor dynamics.
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Amazon volume glide down: UPS continued to intentionally reduce its business with Amazon, shifting focus away from low-margin volume. This contributed to a 7.3% drop in U.S. average daily volume, but management cited improvements in revenue quality as higher-value shipments became a greater share of the mix.
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Ground Saver product adjustments: UPS took deliberate steps to pare back its Ground Saver economy service, especially among non-U.S. e-commerce clients. While this move improved the product mix, it also resulted in unexpectedly high delivery expenses due to flawed delivery density assumptions, prompting renewed discussions with USPS for potential cost relief.
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Network reconfiguration and facility closures: The company closed 74 buildings in the first half of the year as part of its largest-ever network overhaul. Slower-than-expected employee attrition increased costs in the short term, but management expects this to normalize over time, especially with the launch of a voluntary separation program for drivers.
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Trade policy and tariff impacts: New U.S. tariffs and the end of the de minimis threshold for Chinese imports triggered a sharp decline in China-to-U.S. parcel volume—down nearly 35% in May and June. However, UPS was able to redirect capacity and grow volume from China to other international destinations and from India to Europe, showcasing network flexibility but also increasing operational complexity.
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Healthcare logistics and digital growth: Healthcare logistics remained a bright spot, with the segment driving growth across all divisions. UPS highlighted its position as a leader in complex healthcare logistics and continued expansion through the planned acquisition of Andlauer Healthcare Group. Digital subsidiaries such as Roadie and Happy Returns also posted strong growth, reflecting ongoing diversification efforts.
Drivers of Future Performance
United Parcel Service’s forward outlook hinges on execution of cost reduction, adaptability to trade policy changes, and stabilization of key product economics.
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Cost savings and network efficiency: Management is targeting $3.5 billion in cost reductions for this year, with progress hinging on employee attrition rates and the success of voluntary driver buyouts. CFO Brian Dykes underscored that slower-than-expected attrition has temporarily elevated expenses but expects alignment as building closures mature and separation programs take effect.
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Trade policy uncertainty: The company faces significant ambiguity regarding the timing and extent of new tariffs and trade agreements, particularly those affecting shipments from China. CEO Carol Tome cautioned that small and medium business (SMB) customers could see input costs rise by up to 55% if tariffs are fully implemented, potentially suppressing demand and complicating volume forecasts.
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Product mix and automation: UPS continues to refine its product portfolio, pulling back on less profitable offerings like Ground Saver and investing in automation. The share of parcels processed through automated facilities rose to 64%, up from 60% last year. Management believes this will improve flexibility and margin potential, especially during the peak shipping season, though near-term pressure may persist until demand stabilizes and product-level profitability is restored.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be closely watching (1) the pace and cost impact of additional facility closures and voluntary driver separations, (2) the evolution of trade policy and tariff implementation—particularly as it relates to peak season demand forecasts, and (3) the effectiveness of UPS’s efforts to restore profitability in key product lines like Ground Saver. We will also monitor progress in healthcare logistics and digital services for signs of growth resiliency.
United Parcel Service currently trades at $87.50, down from $101.56 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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