tapebrief
UPS · Q3 2025

UPS · Q4 2025 Earnings

Cautious

United Parcel Service

Reported January 27, 2026

30-second summary

UPS closed FY2025 at $88.66B revenue (-2.6% YoY) and 9.8% adjusted operating margin, with Q4 revenue of $24.48B landing in-line with the ~$24B guide and Q4 non-GAAP adjusted consolidated operating margin of 11.8% beating the 11.0–11.5% bar set in October. The FY2026 outlook — $89.7B revenue (+1.2%), ~9.6% consolidated operating margin, $6.5B FCF (+19%), and EPS "about flat to 2025" ($7.16) — is back-end-loaded behind what Carol Tomé called a "bathtub effect" with June 2026 as the inflection point. The $3.5B 2025 cost-out target was delivered as planned and replaced with a new $3B Amazon glide-down savings target for 2026; Ground Saver is officially outsourced to USPS; MD-11s were proactively grounded with a $137M after-tax write-off; and management is now explicitly telegraphing H1 pain rather than promising clean recovery.

Headline numbers

EPS

Q4 FY2025

$2.38

Revenue

Q4 FY2025

$24.48B

-3.2% YoY

Operating margin

Q4 FY2025

10.5%

Key financials

Q4 FY2025
MetricQ4 FY2025YoYQ3 FY2025QoQ
Revenue$24.48B-3.2%$21.41B+14.3%
EPS$2.38—$1.74+36.8%
Operating margin10.5%—8.4%+210bps

Guidance

Company beat Q4 revenue guidance but slightly missed operating margin, posting FY2025 results of $88.7B revenue (-2.6% YoY) and 8.9% operating margin; FY2026 outlook projects stabilization with flat U.S. revenue, modest international growth, and strong SCS recovery, generating $89.7B revenue, 9.6% op margin, and $6.5B free cash flow.

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
RevenueQ4 FY2025approximately $24 billion$24.479 billionin-lineMet
Operating marginQ4 FY202511% to 11.5%10.5%below guidance range by ~50–150 bpsBeat

New guidance

MetricPeriodGuideYoY
RevenueFY2026approximately $89.7 billion—
Operating marginFY2026approximately 9.6%—
Diluted earnings per shareFY2026about flat to 2025—
Free cash flowFY2026approximately $6.5 billion—
U.S. domestic revenueFY2026approximately flat year over year—
U.S. domestic operating marginFY2026flat to 2025—
International revenue growthFY2026low single digits year-over-year—
International operating marginFY2026mid-teens—
Supply Chain Solutions revenueFY2026up high single digits—
Supply Chain Solutions operating marginFY2026low double digits—

Segment KPIs

Q4 FY2025
SegmentQ4 FY2025YoY
U.S. Domestic Package$16.756B-3.2%
International Package$5.045B+2.5%
Supply Chain Solutions$2.678B-12.7%
International Package Revenue Growth+2.5% YoY—

Other KPIs

Q4 FY2025
SegmentQ4 FY2025
U.S. Domestic Package Operating Margin (GAAP)8.5%
International Package Operating Margin (GAAP)17.5%
Supply Chain Solutions Operating Margin (GAAP)9.8%
U.S. Domestic Package Average Revenue Per Piece$13.27
Consolidated Average Daily Package Volume23.522 million
U.S. Domestic Package Cost Per Piece (Non-GAAP)$11.92
Consolidated Volume1,458 million pieces

Management tone

Customer optimization hangover → guidance withdrawn → guidance restored with carve-outs → bathtub year with H2 dependency

The tone shifted decisively from "trust the cost-out timeline" to "the timeline is longer than we said." Three quarters ago management was defending a quantified $3.5B expense-reduction target; two quarters ago they withdrew forward guidance entirely; last quarter they restored a Q4 print guide. This quarter UPS delivered on the $3.5B savings target as planned, set a new $3B Amazon glide-down savings target for 2026, and reset the broader 2026 narrative as a "bathtub" with the inflection point pushed to June. Carol Tomé verbatim: "The way I think about the year is like a bathtub effect. The halves will look different, first half down, second half up, but for the year, the U.S. revenue and operating margin will be flat." That a CEO reaches for a domestic-appliance metaphor to describe a year of flat US margins is itself the signal: management is no longer asking investors to underwrite recovery, only to wait for it — even though the hard cost-out yardstick is still in place, just refreshed.

Ground Saver completed its arc from product to partnership. Last quarter the USPS deal was "preliminary"; this quarter Carol confirmed "we formalized a new relationship with the United States Postal Service to support last-mile delivery" — and Brian Newman immediately flagged "short-term transition expenses related to ground saver" will weigh on H1 2026. Two quarters ago this was an $85M algorithm failure; one quarter ago a "complementary product"; this quarter an outsourced operation with near-term economic drag. The full $400–500M EBIT recovery from the 2025 SurePost insourcing reversal won't land until 2027, per the UBS exchange — an explicit two-year deferral of a benefit that was once framed as imminent.

International posture hardened from "managing trade lane shifts" to "trade policy is a structural headwind." Brian on Q4: "more than half of the decline [in operating profit] related to trade policy changes." On 2026: "the dynamic environment we experienced in 2025 will continue in 2026, primarily due to the tariff and de minimis policy changes." The mid-teens FY2026 international margin guide is roughly in line with FY2025's full-year 15.8% adjusted margin, codifying the new lower run rate. Profitable China-US import lanes (20–30% margins) are being replaced by lower-margin U.S. inbound lanes (high double-digits). Tariff impact anniversaries in May, de minimis in September.

The MD-11 disclosure was an unplanned admission. Two quarters ago there was no mention; one quarter ago fleet was framed as managed depreciation; this quarter Brian disclosed UPS "proactively grounded our fleet of MD-11 aircraft" with a $137M after-tax write-off and "additional costs to secure air capacity" of ~$100M in 2026 (90% in H1). The "proactively" language is doing real work — the alternative read is that an aircraft incident or regulatory action forced an emergency grounding mid-strategy.

Finally, the defensive framing of the growth story has sharpened. Carol verbatim: "Our strategy is not a shrink the company strategy, but rather one where we grow in the best parts of the market." A CEO volunteering "this is not a shrink strategy" is admitting investors are reading it as exactly that. The FY2026 revenue guide of +1.2% on flat US Domestic and low-single-digit international is, definitionally, not growth — it is base-rate inflation absorbing volume decline.

Recurring themes management leaned on this quarter:

Amazon volume glide-down execution and network reconfiguration complexity extending across two halvesStructural shift to higher-quality, lower-volume business mix (SMB, B2B, enterprise, healthcare)Trade policy disruption (tariffs, de minimis exemption changes) creating ongoing revenue mix headwindsAutomation and fixed-cost reduction as offset to volume declines, with timing lags in realizationOutsourcing and partnership strategy (USPS Ground Saver, healthcare acquisitions) replacing in-house operationsFleet modernization (MD-11 retirement, Boeing 767 deployment) creating near-term cost spikes

Risks management surfaced:

Trade policy uncertainty and tariff-driven volume shifts continuing into 2026Lag in fixed and semi-variable cost reductions relative to variable cost removalShort-term transition expenses from Ground Saver outsourcing to USPS offsetting savingsAircraft capacity constraints and leasing costs during MD-11 retirement transitionInternational margin pressure from profitable U.S. import lanes shifting away due to trade policy

Q&A highlights

David Vernon · Bernstein

What is embedded in 2026 guidance regarding exit rate margins for domestic segment and what are the specific costs related to MD-11 retirement and other cost impacts?

MD-11 replacement lease costs of ~$100M in 2026 (90% in H1). Domestic margins will see ~100 bps pressure in H1 from Amazon volume drawdown, Ground Saver transition costs, and MD-11 incremental costs, which will relieve in H2. Exiting at healthy double-digit margins with mid-single-digit SMB/enterprise growth, mid-single-digit rep-per-piece improvement, and normalized cost-per-piece.

MD-11 lease costs ~$100M in 2026 (90% in H1)100 bps margin pressure in H1, relieving in H27-6-7s: 5 in H1, 10 in H2 2026, 3 in 2027International profit expected down ~30% in Q1 then recover

Tom Wadewitz · UBS

What is the go-forward algorithm for domestic package post-Amazon glide-down, including revenue/margin expectations? Will full $400-500M EBIT headwind from 2025 SurePost insourcing be recovered?

Expect mid-single-digit SMB/enterprise volume growth in H2 with rep-per-piece normalized to ~2-3% from base rates. Cost-per-piece will decline below revenue-per-piece driving structural margin improvement. Full $400-500M benefit recovery expected over time but not until 2027 due to workforce migration timeline.

Mid-single-digit enterprise and SMB volume growth expected H2~2% base rate increases expected going forwardCost-per-piece expected below revenue-per-piece$400-500M benefit recovery delayed until 2027

Ari Rosa · Citigroup

How will cost-per-piece normalize through the year, and will higher-quality mix shift assumptions require higher CPP or can it return to low single-digit inflation-aligned rates?

CPP will trend down through 2026, normalizing to inflation-level run rates by year-end after Ground Saver transition, network reconfiguration execution, and automation deployment. With 3% rep-per-piece growth and lower CPP, will achieve ~100 bps unit cost improvement separation to drive margin expansion. 127 automated buildings currently operating at 28% lower CPP than conventional facilities; 24 additional buildings coming online in 2026.

127 automated buildings operational, 24 more in 202628% lower cost-per-piece in automated vs. conventional buildingsCPP to normalize to inflation levels by year-end100 bps unit cost improvement target maintained

Jordan Alliger · Goldman Sachs

What underpins mid-single-digit package growth assumptions in H2 2026, and how confident is management in the revised network and headcount to handle that volume?

Growth driven by non-Amazon small package market stabilization (low single-digit projected growth), fiscal/monetary policy support, and improved manufacturing outlook. Company expects to grow faster than market. Validated by Q4 2025 data showing heavier weights, longer zones, highest SMB penetration ever, highest B2B penetration in 4 years. RFID capabilities (Smart Package, Smart Facility, Smart Fulfillment) enabling new commercial wins; Q4 domestic wins 25% higher than prior year.

Market excluding Amazon projected low single-digit growthQ4 saw highest SMB penetration and highest B2B penetration in 4 years5,500 UPS stores processing 1.3M packages/day with RFID labelingQ4 domestic business wins 25% higher year-over-year

Chris Weatherby · Wells Fargo

What are the specific cost and de minimis pressures in international segment for Q1 and H1 2026?

International will see extreme weakness in Q1 with gradual recovery. Volume pressure from tariff impact (lapped in May) and de minimis impact (lapped in September). Lane mix shift headwind: declining high-margin China-to-U.S. lanes (20-30% margins) being replaced by lower-margin U.S. inbound lanes (high double-digit margins). Q4 2025 margin was 360 bps down; Q1 2026 expected similar pressure. Growth offsetting volume declines coming from Asian diversification (Vietnam air hub 80% full; double-digit growth to Europe/India).

360 bps margin pressure in Q4 2025, similar expected in Q1 2026Vietnam air hub already 80% full in 5-year planDouble-digit growth from Asian countries to Europe/IndiaQ4 2025 international margin was 18%

Answers to last quarter's watch list

Whether the $3.5B FY expense-reduction target is reaffirmed or formally dropped. Delivered as planned. Carol: "As planned, we delivered $3.5 billion in savings from our network reconfiguration and efficiency reimagined initiatives." Management replaced it with a new explicit target — Brian: "we are targeting $3 billion in savings related to the Amazon Glide Down" in 2026. The hard cost-out yardstick is not gone; it has been refreshed for the next phase. Status: Resolved positively
US Domestic GAAP operating margin recovery from 4.2%. Q4 US Domestic GAAP margin came in at 8.5%, with adjusted at 10.2% — a 430bps GAAP sequential recovery. Management is now guiding FY2026 US Domestic operating margin "flat to 2025," meaning no segment-level expansion next year despite the cost actions. The cost-out story is intact at the consolidated level but segment-level expansion is deferred. Status: Continue monitoring
USPS Ground Saver final terms by end of Q4. The relationship was formalized this quarter, with USPS handling last-mile delivery via DDU access. Commercial structure details remain thin in the print, but Brian Newman flagged "short-term transition expenses" weighting H1 2026 margins — confirming UPS is paying near-term cost to migrate. The implication is that UPS has ceded the product's economics in exchange for capacity relief and a 2027 benefit window. Status: Resolved negatively
Q4 actual Amazon ADV decline versus the "down YoY" framing. Consolidated ADV was 23.5M (-9.9% YoY), implying the Amazon component declined materially in line with the ~30% pace originally laid out in Q2. Management confirmed they intend to "glide down another million pieces per day" in 2026 with the inflection at June — a six-to-seven quarter program now extending into mid-2026, materially longer than the original six-quarter timeline. Status: Continue monitoring
Andlauer closing in November and its contribution to year-end cash position. Andlauer closed and is contributing to the Supply Chain Solutions growth guide of +7–9% revenue and low-double-digit margins in 2026. The specific year-end cash position was not called out in this print, and the prior ~$5B target was not reaffirmed verbatim. The acquisition itself is integrated and operational. Status: Continue monitoring
DAP revenue trajectory. DAP grew revenue 25% year-over-year and delivered $4.1 billion in global revenue in 2025, exceeding the prior ~$3.5B target. The metric remains in management's strategic narrative but is not separately framed in the FY2026 guide. Status: Resolved positively

What to watch into next quarter

Q1 FY2026 US Domestic operating margin trough. Management has telegraphed ~100bps of H1 margin pressure from MD-11 (~$100M, 90% H1), Ground Saver transition, and Amazon glide-down, with Q1 specifically guided to "mid-single digits." A Q1 segment margin below that range would suggest H2 recovery is at risk and the June inflection slips.

International segment Q1 operating profit decline versus the ~30% guide. Management quantified expected Q1 international profit down ~30% YoY. A miss to that — particularly with margin below 14% — would signal the mid-teens FY2026 guide is itself optimistic on lane mix.

Whether the ~$89.7B FY revenue and ~9.6% margin guide is held or trimmed at Q1. The guide assumes a market projected at low-single-digit growth, manufacturing recovery, and SMB/enterprise mid-single-digit growth in H2. Any walk-back at Q1 would compound concerns that H2 recovery is conditional rather than structural.

Progress against the new $3B Amazon glide-down savings target. With $3.5B delivered in 2025 and $3B targeted in 2026, Q1 cadence on hour reductions (25M planned), position eliminations (up to 30,000), and building closures (24 identified, with another 60–70 under assessment) is the cleanest forward indicator on whether the cost-out story holds.

Any disclosure of the $400–500M SurePost benefit recovery cadence into 2027. This is the largest single deferred benefit on the table and the spine of any 2027 outlook. Watch for whether management starts to quantify the cadence at Q1/Q2 or keeps it qualitative.

Free cash flow trajectory against the $6.5B FY guide. FCF growth of ~19% on revenue growth of ~1% is the most aggressive operational ask in the guide. Q1 FCF burn — historically negative — needs to set up an H2 inflection that matches the margin story.

Sources

  1. UPS Q4 2025 press release and financial statements, SEC filing (https://www.sec.gov/Archives/edgar/data/1090727/000162828026003510/exhibit992-financialstatem.htm)
  2. UPS Q4 2025 earnings call commentary (management remarks and Q&A)

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