UPS Q2 2025 slides: Revenue beats forecast amid strategic network overhaul

Introduction & Market Context

United Parcel Service (NYSE:UPS) presented its second-quarter 2025 earnings results on July 29, revealing a company in transition as it implements significant strategic changes to address evolving market conditions. Despite beating revenue expectations with $21.2 billion against forecasts of $20.8 billion, UPS shares fell 7.84% in pre-market trading, reflecting investor concerns about declining profits and uncertain guidance.

The logistics giant is navigating a challenging business climate characterized by shifting consumer behaviors in the U.S. small package market, soft manufacturing activity, and global trade disruptions from policy changes and tariff increases. These headwinds have prompted UPS to accelerate its transformation strategy, including network reconfiguration and cost reduction initiatives.

Quarterly Performance Highlights

UPS reported Q2 2025 consolidated revenue of $21.2 billion, representing a 2.7% decrease compared to the same period last year. The company’s non-GAAP adjusted operating profit fell 9.1% year-over-year to $1.88 billion, while adjusted operating margin contracted by 70 basis points to 8.8%. Adjusted diluted earnings per share came in at $1.55, down 13.4% from $1.79 in Q2 2024 and slightly below analyst expectations of $1.57.

As shown in the following consolidated results chart from the company’s presentation:

The earnings decline comes despite efforts to improve revenue per piece, which increased 5.5% year-over-year in the U.S. Domestic segment. This improvement, however, was offset by a 7.3% decline in average daily volume, reflecting UPS’s strategic decision to reduce lower-margin business, particularly from Amazon (NASDAQ:AMZN).

U.S. Domestic Performance

The U.S. Domestic segment, which represents approximately two-thirds of UPS’s business, posted revenue of $14.1 billion, down 0.8% year-over-year. While volume declined significantly, revenue per piece improvements helped mitigate the impact. The segment maintained a non-GAAP adjusted operating margin of 7.0%, unchanged from the previous year.

The following chart illustrates the components affecting U.S. Domestic revenue:

A key development in the U.S. segment was the 23.3% decline in Ground Saver average daily volume, primarily due to pricing actions taken on e-commerce shipments. UPS noted that Ground Saver now represents the smallest portion of total Ground volume in two years, reflecting the company’s strategic shift toward higher-margin business.

The company also highlighted progress in its small and medium-sized business (SMB) strategy, with SMBs now comprising 32% of total U.S. volume, a 230 basis point improvement year-over-year. This chart shows the volume trends:

International and Supply Chain Solutions

The International segment showed mixed results with revenue increasing 2.6% to $4.5 billion, driven by a 3.9% growth in total average daily volume and a 6.1% increase in export volume. However, non-GAAP adjusted operating profit declined 17.2% to $682 million, with operating margin contracting 370 basis points to 15.2%.

UPS attributed the profit pressure to trade lane shifts, product trade-downs, lower demand-related surcharges, and investments to expand weekend services in Europe. The following chart details the International segment performance:

The Supply Chain Solutions segment reported revenue of $2.7 billion, down 18.3% year-over-year, with 90% of the decrease attributed to the divestiture of Coyote in the third quarter of 2024. Non-GAAP adjusted operating profit fell 13.1% to $212 million, though operating margin improved by 50 basis points to 8.0%. Air and Ocean Forwarding revenue declined due to changes in tariffs, resulting in demand softness and lower market rates.

Strategic Initiatives and Cost Reduction

A central focus of UPS’s presentation was its comprehensive transformation strategy, targeting approximately $3.5 billion in cost savings for 2025. The company provided this overview of its strategic actions:

Key elements of this strategy include:

1. Accelerating the reduction of Amazon volume

2. Reconfiguring the U.S. network, with 74 buildings closed year-to-date and additional closures planned for the second half of 2025

3. Implementing a voluntary separation program for all full-time U.S. drivers

4. Taking pricing actions on Ground Saver to manage volume

5. Launching efficiency initiatives that are accelerating savings in the second quarter

UPS expects these cost-saving measures to intensify throughout the year, with the greatest impact in the second half of 2025, as illustrated in this chart:

Outlook and Market Reaction

UPS refrained from providing forward-looking revenue or operating profit guidance, citing uncertainties related to tariff and trade changes, potential impacts on consumer behavior, timing of Ground Saver solutions implementation, and the full impact of the driver voluntary separation program.

For 2025, the company expects capital expenditures of approximately $3.5 billion, dividend payments of around $5.5 billion (subject to board approval), and an estimated tax rate of 23.5%. UPS has already completed its planned $1.0 billion in share repurchases for the year and made $921 million of its planned $1.4 billion in pension contributions.

Despite beating revenue expectations, UPS shares fell significantly following the earnings release. The stock closed at $101.58 on the previous trading day and dropped to $98.30 in pre-market trading, reflecting investor concerns about declining profits, reduced cash flow, and the lack of forward guidance. Year-to-date, UPS stock has traded between a 52-week high of $145.01 and a low of $90.55, highlighting the volatility facing the logistics sector amid changing global trade dynamics.

CEO Carol Tomé acknowledged these challenges during the earnings call, stating, "Changes in trade policies are impacting global trade and demand," while emphasizing that UPS is "proactively taking action to put our company on a much stronger footing." The effectiveness of these strategic actions will likely determine UPS’s ability to navigate the uncertain market environment in the coming quarters.

Full presentation:

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