The challenges: UPS’ turnaround remains in the early innings due to structural inefficiencies, operational missteps, and mounting macroeconomic headwinds.

The details:

• One of the biggest hits came from the recently implemented “de minimis” tariffs on low-value Chinese imports, which triggered a sharp 35% drop in average daily volume between the US and China—worse than UPS had expected—as consumers pulled back spending on platforms like Temu and Shein.
• A misstep came from UPS’ decision to walk away from its partnership with the US Postal Service, which had previously handled costly last-mile deliveries. Taking that function in-house proved more expensive than anticipated, prompting UPS to reopen talks with USPS to reinstate some form of collaboration.
• To compound matters, broader economic volatility is making it harder to plan ahead. The company cited that uncertainty in its decision to withhold earnings guidance.

The numbers:

• Non-GAAP adjusted EPS came in at $1.55, down 13.4% YoY and slightly below analysts’ estimate of $1.57.
• Revenues dropped 2.7% to $21.22 billion, though that beat expectations of $20.85 billion.
• Domestic revenues dipped 0.8% to $14.08 billion, driven by softer demand.
• Average daily domestic package volume fell 7.3% to 16.6 million.

Our take: UPS is tightening its belt in preparation for leaner times. The company is actively trying to streamline operations—planning to shutter up to 10% of its buildings, downsize its fleet, and reduce its US workforce to better align with leaner volumes. It’s also trimming low-margin business, notably cutting back on Amazon deliveries, which made up as much as 11.8% of its total revenues last year, in an effort to prioritize more profitable shipments.

Still, with demand under pressure and cost headwinds mounting, stabilizing performance will be an uphill climb.

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