UPS’s SWOT analysis: volume declines and Amazon loss weigh on stock outlook

United Parcel Service (NYSE:UPS) faces significant headwinds as it navigates a challenging business environment marked by declining volumes, particularly from its once-reliable partner Amazon. The global logistics giant has implemented aggressive cost-cutting measures and strategic shifts in an attempt to offset these challenges, but questions remain about whether these efforts will be sufficient to maintain growth and profitability in the near term.

Business performance and strategic initiatives

UPS reported strong first-quarter results in 2025, exceeding expectations by approximately 2% with consolidated adjusted EBIT of $1,763 million. The company’s domestic segment performed well, compensating for softer results in its Supply Chain Solutions division. This performance demonstrated UPS’s ability to maintain solid yields and cost management, supporting stable domestic margins despite facing double-digit volume declines.

In response to ongoing challenges, UPS has announced ambitious cost reduction initiatives. The company is undertaking a significant network reconfiguration expected to reduce costs by $3.5-5 billion over 2025 and 2026. These measures include facility closures and workforce reductions, with $500 million in savings already achieved in Q1 2025.

Beyond cost-cutting, UPS is strategically pivoting away from lower-margin business-to-consumer (B2C) operations toward higher-margin supply chain solutions, including healthcare logistics. This shift represents a fundamental change in business strategy as the company seeks to improve its margin profile and return on invested capital.

For Q2 2025, UPS has set a revenue target of $21.0 billion with a 9.3% operating margin, implying an EBIT of approximately $1,953 million. This projection falls roughly 9% below consensus estimates, reflecting the company’s cautious outlook. Notably, UPS has not updated its full-year guidance, citing macroeconomic uncertainty.

Amazon relationship and volume challenges

One of the most significant challenges facing UPS is the dramatic reduction in shipments from Amazon, which is insourcing volumes previously handled by UPS’s SurePost service. This shift is expected to result in a 16% decline in Amazon volumes in Q2 2025, followed by a steeper 30% drop in the second half of the year.

The Amazon volume reduction presents a substantial obstacle for UPS, raising questions about the company’s ability to reduce 10% of its domestic expenses quickly enough to offset these losses. While UPS has a strong track record of delivering during peak seasons, analysts express concern about the company’s capacity to compensate for such a significant reduction in Amazon volumes.

These volume challenges are particularly concerning given the ambitious nature of UPS’s fourth-quarter guidance. The company’s ability to meet these targets may be compromised by the accelerating volume losses anticipated in the latter half of 2025, which could significantly impact profit margins.

Tariff impact and international business

While UPS reported notable revenue growth in its international segment during Q1 2025, analysts caution that this positive trend could be short-lived due to impending US tariffs expected to impact the business during the summer of 2025. These tariff uncertainties continue to overshadow potential internal improvement measures.

The international business remains a critical component of UPS’s strategy, with potential growth opportunities in China to rest-of-world and rest-of-world to US trade lanes that could partially offset domestic volume declines. However, the uncertain tariff environment creates significant headwinds for this segment.

Analysts note that US tariffs represent a more significant catalyst affecting UPS’s performance than internal cost-saving measures. This external factor adds another layer of complexity to the company’s already challenging operating environment.

Financial outlook

The financial outlook for UPS reflects the company’s current challenges. Revenue is forecast to decline by 5.3% in 2025 to $86,241 million. Operating profit (EBIT) is estimated at $7,907 million for 2025, down from $8,468 million in 2024.

Earnings per share projections have been revised downward across multiple analyst reports. EPS is projected to decrease by 14.4% in 2025 to $7.01, according to some estimates. Other analysts forecast EPS of $6.95 for 2025 and $8.00 for 2026, representing reductions from previous estimates of $7.34 and $8.30, respectively.

Despite these challenges, the dividend appears to be secure for the time being, with an expected yield of around 6.8%. However, there is growing market sentiment that the current dividend payment may become unsustainable if volume declines and margin pressures persist.

Bear Case

Can UPS effectively offset the significant decline in Amazon volumes?

UPS faces a substantial challenge with Amazon reducing its shipment volumes by 16% in Q2 2025 and a projected 30% in the second half of 2025. This reduction stems from Amazon insourcing volumes previously handled by UPS’s SurePost service. The magnitude of this volume loss creates significant pressure on UPS’s revenue and operational efficiency.

The company’s ability to reduce 10% of its domestic expenses quickly enough to offset these volume losses remains questionable. While UPS has implemented cost-cutting measures, the pace of Amazon’s withdrawal may outstrip the company’s ability to adjust its cost structure accordingly. The accelerating volume losses anticipated in the latter half of 2025 could significantly impact profit margins, making it difficult for UPS to meet its ambitious fourth-quarter guidance.

Will increasing tariffs derail UPS’s international growth potential?

Despite strong performance in the international segment during Q1 2025, UPS faces substantial headwinds from impending US tariffs expected to impact business during summer 2025. These tariff uncertainties overshadow internal improvement measures and represent a more significant catalyst affecting performance than cost-saving initiatives.

The tariff situation creates a particularly challenging environment for UPS’s international business, which has been a bright spot in recent results. While there are potential growth opportunities in various global trade lanes, the uncertain tariff environment threatens to disrupt these opportunities and further complicate UPS’s recovery efforts. This external factor adds another layer of complexity to the company’s already challenging operating landscape and could potentially negate progress made through internal cost-cutting and strategic initiatives.

Bull Case

How might UPS’s strategic shift to higher-margin services improve long-term profitability?

UPS is strategically pivoting away from lower-margin B2C operations toward higher-margin supply chain solutions, including healthcare logistics. This fundamental shift in business strategy aims to improve the company’s margin profile and return on invested capital over time.

The focus on higher-value-added products and services could potentially transform UPS’s business model, reducing reliance on volume-driven segments susceptible to competitive pressures. Healthcare logistics, in particular, offers more stable demand patterns and typically commands premium pricing. If executed effectively, this strategic shift could create a more resilient revenue base with improved profitability characteristics, potentially offsetting volume declines in traditional package delivery services.

Could UPS’s cost reduction initiatives create sustainable competitive advantages?

UPS has announced an ambitious cost reduction plan valued at $3.5-5 billion over 2025 and 2026, with $500 million in savings already achieved in Q1 2025. The company is undertaking significant network reconfiguration, including facility closures and workforce reductions.

These cost-saving initiatives, if successfully implemented, could fundamentally improve UPS’s cost structure and operational efficiency. The company has demonstrated solid yields and cost management capabilities, supporting stable domestic margins despite volume declines. If UPS can maintain this disciplined approach to cost management while optimizing its network, it could emerge with a leaner, more efficient operation capable of generating stronger returns even with lower volumes. This improved cost position could provide a sustainable competitive advantage in the logistics industry, particularly if competitors face similar volume challenges without comparable cost reduction programs.

SWOT Analysis

Strengths

• Strong track record of peak season delivery performance
• Solid yields and cost management sustaining margins
• Successful cost reduction initiatives ($500M savings in Q1 2025)
• Strong international segment performance
• Stable dividend yield around 6.8%

Weaknesses

• Heavy reliance on Amazon volumes
• Double-digit volume declines in domestic business
• Challenges in reducing domestic expenses quickly enough
• Execution risks in network reconfiguration
• Ambitious Q4 guidance that may be difficult to achieve

Opportunities

• Strategic shift to higher-margin supply chain solutions
• Healthcare logistics expansion potential
• Possible growth in China to ROW and ROW to US trade lanes
• $3.5-5 billion cost reduction plan over 2025-2026
• Network optimization to improve long-term efficiency

Threats

• Amazon insourcing previously outsourced volumes (16% decline in Q2, 30% in H2 2025)
• Tariff uncertainties affecting international business
• Accelerating volume losses expected in H2 2025
• Growing concerns about dividend sustainability
• Cyclical headwinds pressuring volume and product mix improvements

Analyst Targets

• Barclays (October 29, 2025): Underweight, $80.00 price target
• Barclays (October 14, 2025): Underweight, $80.00 price target
• HSBC (May 1, 2025): Hold (downgraded from Buy), $105.00 price target (reduced from $140.00)
• BMO Capital Markets (April 30, 2025): Outperform, $125.00 price target (reduced from $130.00)
• Barclays (April 30, 2025): Underweight, $90.00 price target

This analysis is based on information available from April 30, 2025, to October 29, 2025.

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