Q & A Highlights

Q : How can UPS ensure margin improvement despite the significant revenue drop from the Amazon volume reduction? A : Carol Tome, CEO, explained that while Amazon is UPS's largest customer, it is not the most profitable. The decision to reduce Amazon's volume by over 50% by 2026 is strategic to improve margins. Brian Dykes, CFO, added that the network will be reconfigured to align with new volume levels, ensuring cost reductions match the volume decline, thus supporting margin improvement.

Q : What is the impact of bringing SurePost deliveries in-house, and is it a strategy to replace Amazon volume? A : Carol Tome stated that the decision to in-source SurePost deliveries was driven by service concerns due to USPS's operational changes. The move is not primarily to replace Amazon volume but to ensure service quality. Nando Cesarone, President U.S. and UPS Airline, added that the network is equipped to handle the additional volume without significant cost increases.

Q : How does UPS plan to grow its business outside of the Amazon volume reduction? A : Carol Tome highlighted that UPS aims to grow in segments like SMBs, healthcare, and B2B. The company plans to increase SMB volume to 32% in 2025 and focus on complex logistics solutions. Brian Dykes noted that despite the volume reduction, revenue per piece is expected to grow by 6% due to improved customer and product mix.

Q : What are the expectations for UPS's financial performance in 2025 and beyond? A : Brian Dykes stated that UPS expects to expand its U.S. Domestic operating margin in every quarter of 2025, with a full-year margin approaching 9%. The company anticipates further margin improvement into 2026, aiming for a 12% U.S. operating margin by the fourth quarter of 2026.

Q : How does UPS view its competitive position in the evolving parcel delivery market? A : Carol Tome emphasized that UPS is focusing on differentiated capabilities in complex logistics, such as RFID tagging and healthcare logistics. The company is investing in international diversification and expanding its network in Asia to capitalize on changing trade lanes. UPS aims to maintain its competitive edge through innovation and strategic growth in high-value segments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .

This article first appeared on GuruFocus .