Fewer Amazon Packages, Higher Profits: UPS Q2 Earnings Beat Expectations, Raises Full-Year Forecast

United Parcel Service (UPS-US), the world's largest package delivery company, released its financial results for the second quarter of the 2026 fiscal year (ended June 30) on Tuesday (28th). Revenue and adjusted earnings surpassed Wall Street expectations, driven by improved pricing, recovering package volumes, and the successful execution of its strategy to reduce low-margin freight from Amazon (AMZN-US). The company also raised its full-year financial guidance.

CEO Carol Tome stated that the company had completed its 18-month plan to reduce Amazon shipment volumes and restructure its logistics network as scheduled, marking the second quarter as a significant turning point in operational performance.

As of press time, UPS shares rose 0.80% in pre-market trading on Tuesday, temporarily reaching $113.85 per share.

Revenue increased 7.6% year-over-year to $22.83 billion, exceeding analysts' expectations of approximately $21.8 billion—the largest beat in at least five years. Adjusted operating income reached $2.1 billion, with adjusted earnings per share (EPS) at $1.76, up from $1.55 in the same period last year and above the market estimate of $1.66.

However, net income declined 51.4% year-over-year to $604 million due to $891 million in expenses related to a voluntary early retirement program for drivers. The program offers up to 7,500 drivers a $150,000 compensation package and is part of the company's broader effort to streamline its workforce and delivery network.

By segment, domestic U.S. package revenue rose 6% to $14.93 billion, with average revenue per package up 9.3%. Adjusted operating margin stood at 8%. International revenue surged 12.5% to $5.04 billion, with per-package revenue up 18.9% and operating margin reaching 12.4%, highlighting the stronger profitability of overseas operations compared to the U.S. market.

UPS noted that fuel surcharges helped offset rising energy costs, while improved volume and stronger pricing power boosted revenue. In contrast, rival FedEx (FDX-US) recently reported a decline in operating margin for its core delivery business.

The company raised its full-year revenue forecast from $89.7 billion to $91.2 billion, above the market's $90.4 billion estimate. Full-year adjusted EPS guidance was increased from $7.16 to $7.22, also exceeding expectations.

The upward revision signals that UPS's strategy of exiting low-margin Amazon package business is paying off. Amazon has long been UPS's largest customer, but the massive e-commerce volume did not translate into proportional profits. Tome previously stated that certain Amazon contracts diluted the company's margins.

Over the past 18 months, UPS has gradually reduced Amazon shipment volumes, removing over half of related packages by June 2024. Amazon's share of UPS revenue has declined from over 13% at its peak to 8.8% by the end of Q1 2024.

The company is now reallocating resources to fewer but higher-margin packages, including complex healthcare logistics, international freight, and small-to-medium business (SMB) customers who are less likely to receive large corporate discounts. Simultaneously, UPS is aiming to achieve $3 billion in cost savings by 2026 through facility closures, workforce reductions, and network optimization.

Nonetheless, UPS faces challenges including weak freight demand and intensifying competition. U.S. tariffs and the elimination of the de minimis exemption for low-value imports have suppressed cross-border package volumes from China-based e-commerce platforms like Shein and Temu. Amazon has also been opening its in-house logistics network to third-party sellers, potentially further eroding market share from traditional couriers.

Additionally, rising fuel prices due to Middle East tensions (Iran conflict), potential softening in U.S. consumer spending, and upcoming labor contract negotiations with the Teamsters union—which may lead to higher wage pressures—remain key uncertainties for UPS's future operations. UPS stock has risen 13.9% year-to-date through Monday, outperforming the S&P 500's 8.3% gain but trailing FedEx's 33.6% surge.