tapebrief
UPS · Q4 2025

UPS · Q1 2026 Earnings

Cautious

United Parcel Service

Reported April 28, 2026

30-second summary

UPS held the FY2026 consolidated guide (~$89.7B revenue, ~9.6% operating margin, EPS flat to 2025) and posted Q1 revenue of $21.20B (-1.6% YoY) with consolidated non-GAAP adjusted operating margin of 6.2% — but quietly cut FY2026 free cash flow guidance by $1B to $5.5B (from $6.5B), citing one-time driver choice program payments. US Domestic adjusted operating margin came in at 4.0%, at the low end of the 4-5% Q1 telegraph, and Supply Chain Solutions revenue fell 6.5% YoY against a FY guide that still requires high-single-digit growth — putting the H2 inflection on a tighter wire than last quarter's "bathtub" framing implied.

Headline numbers

EPS

Q1 FY2026

$1.07

Revenue

Q1 FY2026

$21.20B

-1.6% YoY

Free cash flow

Q1 FY2026

$1.28B

Operating margin

Q1 FY2026

6.0%

Key financials

Q1 FY2026
MetricQ1 FY2026YoYQ4 FY2025QoQ
Revenue$21.20B-1.6%$24.48B-13.4%
EPS$1.07—$2.38-55.0%
Operating margin6.0%—10.5%-450bps
Free cash flow$1.28B———

Guidance

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

MetricPeriodPrior guideActualΔResult
RevenueQ1 FY2026—$21.202 billionin-lineMet
Operating MarginQ1 FY2026—6.0%in-lineMet
U.S. Domestic Package Revenue GrowthQ1 FY2026—-2.3%negative decline reportedMissed
International Package Revenue GrowthQ1 FY2026—3.8%in-line with low single digitsMet
Supply Chain Solutions Revenue GrowthQ1 FY2026—-6.5%negative decline vs. full-year high single-digit growth expectationMissed

New guidance

MetricPeriodGuideYoY
Capital ExpendituresFY2026$3.0 billion—
Dividend PaymentsFY2026$5.4 billion—
Pension ContributionFY2026$1.3 billion—
Cost-Out TargetFY2026$3 billion—

Changes to prior guidance

MetricPeriodPrior guideNew guideΔResult
Free Cash Flow
FY2026
approximately $6.5 billion$5.5 billion-$1.0 billionLowered

Reaffirmed unchanged this quarter: Revenue ($89.7 billion), Operating Margin (approximately 9.6%), Diluted Earnings Per Share (flat to 2025), U.S. Domestic Full-Year Revenue (flat year-over-year)

Segment KPIs

Q1 FY2026
SegmentQ1 FY2026YoY
U.S. Domestic Package$14.125B-2.3%
International Package$4.54B+3.8%
Supply Chain Solutions$2.537B-6.5%

Other KPIs

Q1 FY2026
SegmentQ1 FY2026
U.S. Domestic Package Operating Margin (Non-GAAP Adjusted)4.0%
International Package Operating Margin (Non-GAAP Adjusted)12.1%
Supply Chain Solutions Operating Margin (Non-GAAP Adjusted)8.1%
Consolidated Volume1,189 million packages
Average Daily U.S. Domestic Package Volume16,040 thousand packages
Consolidated Average Revenue Per Piece$15.32
U.S. Domestic Package Cost Per Piece (Non-GAAP Adjusted)$13.35
Operating Cash Flow$2,224 million

Management tone

Customer optimization hangover → guidance withdrawn → guidance restored with carve-outs → bathtub year with H2 dependency → "pressures largely behind us"

Three quarters ago UPS was defending a quantified cost-out target; two quarters ago they withdrew forward guidance entirely; last quarter they reset 2026 as a "bathtub" with H1 down and H2 up; this quarter the language pivoted to "these cost pressures are largely behind us as we move into the final months of the execution of our Amazon Glide Down and Network Reconfiguration Initiative." Brian Dykes quantified $350M of incremental Q1 FY2026 expense from weather, casualty, and transitional costs that he explicitly framed as non-recurring. The signal is that management is no longer asking investors to underwrite recovery — they are claiming recovery has begun. The risk is that the FCF cut sits inside the same call.

The Amazon framing completed its multi-quarter arc from "necessary headwind" to "inflection point." Two quarters ago Amazon was framed as a six-quarter drawdown UPS was three quarters into; last quarter as the engine of a 2026 bathtub; this quarter Carol Tomé said the action "is moving us toward a more profitable U.S. small package business with the back half of 2026 expected to be the inflection point." The verbatim shift matters: Amazon is no longer the problem being managed, it is the catalyst being celebrated. Whether the 4.0% Q1 FY2026 US Domestic margin supports that read or undermines it is the next quarter's test.

The strategic posture hardened around premium mix in a way that reads as concession of the volume thesis. Carol verbatim: "We're overturning the old industry assumption that scale alone drives profitability. Instead, we're focused on premium segments like SMB, B2B, and complex healthcare." A logistics company explicitly rejecting scale economics is a meaningful philosophical break — and one that aligns with the reality that consolidated volume has fallen for six consecutive quarters. The framing is forward-looking but the evidence base (SMB strength, healthcare double-digit margins, automated buildings at materially lower CPP) is concrete and quantified across multiple Q&A exchanges.

The "why didn't you raise" question was asked twice in Q&A and the answer hardened into a confidence-with-restraint posture rather than a cautious one. Carol on the Bernstein exchange: April results exceeding plan, international trade lanes moving "from red to orange," underlying business better than expected — but Middle East war and fuel demand uncertainty preclude a raise. This is materially different from last year's "we don't have visibility" tone; it is now "we have visibility, but we are choosing not to spend it." That choice is consistent with a management team that has been burned by guiding twice in the last six quarters and prefers to beat-and-hold than over-promise into H2.

International tone tightened from "trade lane shifts are structural" to "trade lane shifts are normalizing." Carol's Q&A framing of APAC margin decline as "a moment in time" and trade lanes shifting "from red to orange to yellow, and in some cases, green" is the most optimistic international commentary in four quarters. The 12.1% margin print already below the FY mid-teens guide gives that optimism limited room to disappoint.

Recurring themes management leaned on this quarter:

Amazon glide down as profitability inflection pointPremium volume mix (SMB, B2B, healthcare) over scaleNetwork agility and automation driving future margin expansionRevenue quality and revenue-per-piece growth offsetting volume declinesHealthcare as sustained growth engine with market share gainsTrade policy adaptation and geographic revenue diversification

Risks management surfaced:

Higher fuel costs from Middle East conflictU.S. consumer confidence at historic lowsMacroeconomic environment volatilityTrade policy uncertainty and trade lane shiftsDemand impact from external pressures

Q&A highlights

Tom Wadewitz · UBS

Asked about the 1Q margin ramp expectations, visibility to 2Q margin improvement, impact of $350M transitional costs, and role of fuel headwinds/tailwinds in Q2 versus Q1.

Management attributed 1Q underperformance to 70bps of incremental weather and casualty costs. Identified margin ramp drivers: normal seasonal uplift, weather/casualty costs behind them, declining aircraft lease costs from 767 deliveries, and completion of ground saver outsourcing. Reaffirmed full-year guidance on fuel citing fuel surcharge protection; fuel had minimal 1Q impact but high prices emerging late quarter.

70 basis points incremental weather and casualty costs in 1Q~$150 million transitional costs in 1Q declining into 2Q77% of driver buyout positions leaving in AprilFuel surcharge indexes protect from profit impact

David Vernon · Bernstein

Asked about pace of cost takeout changes due to union negotiations, and why guidance wasn't raised despite domestic and international beats and 1Q outperformance when adjusting for transitional costs.

Carol stated underlying business better than expected, April results exceeding plan, international trade lanes improving (red to orange), but too early in year to raise amid Middle East war and potential high fuel demand impacts. Emphasized strong SMB growth, healthy RPP and base pricing, and confidence in underlying trends. Brian reinforced cost takeout pace unchanged, actions positioning for back-half margin inflection.

April results exceeding internal planInternational trade lanes moving from red to orangeSMB growth continuing as expectedNo change to cost takeout pace or timing

Jordan Alliger · Goldman Sachs

Asked why 2Q international guidance matched 1Q despite significant outperformance on both revenue (+4% vs flat expected) and margin (12%+ vs 10-11% range), and whether beats would persist.

Brian cited two 1Q drivers: premium segment leaning in Europe and China-U.S. trade lane not as bad as feared, providing recovery in certain lanes. Noted 2Q will still lap Liberation Day and de minimis tariff elimination laps providing improvement, but incremental Middle East network reconfiguration costs offsetting some gains. Cautious on summer European de minimis elimination.

Amazon at 8.8% of total revenue, down from 13%+~$130 million export/import revenue exposure to Middle East2,000 employees in Middle East, all safeMay lap of Liberation Day and China de minimis elimination

Scott Group · Wolf Research

Asked whether higher fuel environment with raised surcharge schedules creates profit benefit, and longer-term margin trajectory for U.S. business given 7-8% range expected for 2026.

Carol stated fuel revenue upside offset by associated costs, no windfall expected, demand impact uncertainty. Positioned 2026 as inflection year with back-half looking considerably different from first-half. Emphasized premium market focus (SMB, B2B, healthcare), productivity gains (best in 20 years), automation (60.7% of buildings, 28% cost savings), and 50-100bps RPP-CPP spread opportunity for 2027. International pursuing same premium strategy.

2026 expected 7-8% U.S. margin range2027 margins significantly better than 202660.7% of buildings automated, targeting 68%Cost per piece 28% lower in automated buildings

Jonathan Chappell · Evercore ISI

Asked about international margin drivers and likelihood of returning to high-teens margin levels given current below-historical-trend performance, and what structural improvements are needed.

Carol attributed 500bps APAC margin decline to China-U.S. trade lane tariff impacts, characterized as temporary. Noted normalization occurring with IEPA tariff elimination returning to 10% tariffs, with trade lanes shifting from red to orange to green. Emphasized premium segment penetration in Europe and movement away from low-margin e-commerce as drivers for margin recovery to mid-to-high teens.

APAC region margin down 500 basis points year-over-yearChina-U.S. trade lane is most profitable trade laneTrade lanes normalizing from red to orange to green statusInternational targeting high-teen margins

Answers to last quarter's watch list

Q1 FY2026 US Domestic operating margin trough. Came in at 4.0% adjusted — at the low end of the 4-5% telegraph but inside the range. Brian quantified 70bps of weather/casualty headwind and ~$150M of transitional costs declining into Q2, with the Q2 guide of 7.5-8.5% requiring a 350-450bps sequential step-up. The June inflection narrative survives this print but has no further cushion. Status: Continue monitoring
International segment Q1 FY2026 operating profit trajectory. International margin printed 12.1% on revenue +3.8%, with the 500bps APAC margin decline (China-US trade-lane tariff impact) framed as temporary. The Q2 guide of 13-14% margin sits below the FY mid-teens guide, leaving limited room for further deterioration. Status: Continue monitoring
Whether the ~$89.7B FY revenue and ~9.6% margin guide is held or trimmed at Q1. Held — explicitly reaffirmed verbatim. The FCF guide, however, was cut by $1B. Investors should read this as: operating story intact, cash story modestly impaired. Status: Resolved positively (on operating guide; FCF cut is a separate item flagged in the guidance table).
Progress against the new $3B Amazon glide-down savings target. Reaffirmed as on track with no quantified YTD progress disclosed beyond Carol's "firmly on track" framing. Specific hour-reduction, position-elimination, and building-closure cadence numbers from the January call were not refreshed in the Q1 FY2026 disclosure. Status: Continue monitoring
Any disclosure of the $400–500M SurePost benefit recovery cadence into 2027. Not addressed in Q1 FY2026 commentary captured in the inputs. Management kept the discussion focused on FY2026 execution and FY2027 margin direction (Carol's "much better than '26" comment) without resizing or refreshing the SurePost-specific benefit estimate. Status: Continue monitoring
Free cash flow trajectory against the $6.5B FY guide. The guide was cut to $5.5B, attributed to one-time driver choice program payments. Q1 FY2026 FCF of $1.28B is a stronger Q1 starting point than UPS typically prints, which is the only reason the cut isn't larger. Status: Resolved negatively

What to watch into next quarter

Q2 FY2026 US Domestic operating margin against the 7.5-8.5% guide. A print at or below 7.5% would imply the 350-450bps sequential rebuild from Q1 is short of plan, and the FY "flat to 2025" segment guide becomes mathematically harder for H2 to bridge.

Whether the FY FCF guide of $5.5B survives Q2 FY2026. Driver choice program payments are characterized as one-time; a further cut would suggest either the program is larger than disclosed or other cash items (pension, working capital) are deteriorating. The $5.5B FCF vs. $5.4B dividend + $1.3B pension math leaves no buffer.

Supply Chain Solutions revenue trajectory. -6.5% in Q1 FY2026 against a FY guide of high-single-digit growth requires the segment to inflect to roughly +12-15% in H2. Anything below low-single-digit growth in Q2 FY2026 would make the FY guide implausible.

International margin recovery toward mid-teens. 12.1% Q1 FY2026 with Q2 guided 13-14% — a Q2 print at or below 13% would put the FY mid-teens guide on watch and validate the concern that lane-mix degradation is structural rather than temporary.

Any quantified update on the $3B Amazon glide-down cost-out target or the $400-500M SurePost benefit cadence. Both were referenced qualitatively this quarter; investors need cadence numbers to underwrite the FY2027 margin expansion narrative Carol began telegraphing.

Whether April's "exceeding plan" commentary translates into a Q2 FY2026 beat-and-raise or another beat-and-hold. Two consecutive beat-and-holds with FY guide unchanged is defensible; three suggests management does not trust the back-half assumptions in their own guide.

Sources

  1. UPS Q1 FY2026 press release and financial statements, SEC filing exhibit 99.2 (https://www.sec.gov/Archives/edgar/data/1090727/000162828026027717/exhibit992-financialstatem.htm)
  2. UPS Q1 FY2026 earnings call commentary (management remarks and Q&A as captured in tone, guidance, and Q&A extraction inputs)

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