United Parcel Service Q1 Earnings Call Highlights

Key Points

• Transition and revenue quality: UPS executed a U.S. network reconfiguration and deliberately reduced lower‑yielding (notably Amazon) volume — U.S. ADV fell 8% while revenue per piece rose 6.5%, leaving U.S. Domestic revenue down just 2.3% to $14.1 billion.
• Q1 results, temporary costs and outlook: Consolidated revenue was $21.2 billion with operating profit of $1.3 billion and EPS of $7.00, though the quarter included about $350 million of incremental cost pressures; UPS reaffirmed 2026 targets (~$89.7 billion revenue, ~9.6% operating margin) and expects U.S. Domestic Q2 margins of 7.5–8.5%.
• Workforce and cost-savings actions: UPS accepted roughly 7,500 voluntary driver buyouts, has cut nearly 25,000 operational positions year‑over‑year, is targeting 30,000 reductions in 2026 and aims for about $3 billion in annual savings.

United Parcel Service NYSE: UPS executives said the company’s first quarter of 2026 marked a “critical transition period” as it executed major strategic actions tied to a U.S. network reconfiguration, an intentional reduction in lower-yielding volume, and continued emphasis on higher-quality revenue.

First-quarter financial results

UPS reported first-quarter consolidated revenue of $21.2 billion, operating profit of $1.3 billion, and an operating margin of 6.2%, CEO Carol Tomé said. CFO Brian Dykes added that diluted earnings per share were $7.00. PJ Guido, UPS’ investor relations officer, noted that GAAP results included after-tax transformation charges of $42 million, or $0.05 per diluted share, and that the call’s discussion referred to adjusted results unless stated otherwise.

Tomé said the quarter came amid “volatile global markets” and “rising fuel costs,” but added that UPS performance exceeded internal expectations for the third consecutive quarter.

U.S. Domestic: Volume declines offset by revenue quality

In the U.S. Domestic segment, UPS continued to emphasize “revenue quality” while executing the “Amazon glide down” and network reconfiguration, Dykes said. U.S. average daily volume (ADV) declined 8% year-over-year, and Dykes said nearly two-thirds of that decline stemmed from reduced Amazon volume and deliberate actions to remove lower-yielding e-commerce volume. Air ADV fell 8.9% and Ground ADV declined 7.9%.

U.S. Domestic revenue totaled $14.1 billion, down 2.3% year-over-year despite the 8% ADV decline, as revenue per piece increased 6.5%. Dykes broke down the revenue per piece improvement as follows:

• 340 basis points from base rates and package characteristics
• 200 basis points from customer and product mix improvements
• 110 basis points from changes in fuel price

Mix metrics improved, Dykes said. SMB ADV increased 1.6% year-over-year, and SMBs represented 34.5% of total U.S. volume, “the highest SMB penetration in our history.” B2B ADV was down 5.1% but represented 45.2% of total U.S. volume, a 140 basis point improvement and the highest first-quarter B2B penetration in six years.

Operating profit in U.S. Domestic was $565 million with a 4% operating margin, which Dykes said included a 250 basis point negative impact from short-term cost pressures.

Network actions and cost pressures: $350 million in temporary expense

Management highlighted multiple actions undertaken in the quarter, including further reductions in “non-remunerative Amazon volume” by an average of 500,000 pieces per day and the closure of 23 additional buildings, Tomé said. She also said UPS shifted a portion of its Ground Saver volume back to the U.S. Postal Service for last-mile delivery under a new agreement.

Dykes said U.S. Domestic expense was “nearly flat,” but the quarter included about $350 million of incremental cost pressures. He attributed the costs to temporary third-party aircraft lease expense while the company retired its MD-11 fleet and took delivery of 767s, transition costs and excess staffing tied to Ground Saver, and a combination of inclement weather and higher casualty expense. Cost per piece rose 9.5% year-over-year.

On the Driver Choice voluntary driver buyout program, Tomé said UPS expects to reduce roughly 7,500 full-time driver positions and that demand “exceeded our expectations.” She later told analysts the program was oversubscribed and UPS “accepted the 7,500.” In response to a question about timing, Tomé said 77% of drivers in the program are leaving in April, “so there will absolutely be a benefit in the second quarter.” Dykes added that roughly $150 million of transitional costs from the first quarter would begin to roll off in the second quarter.

Dykes also said UPS ended the quarter with operational positions down by nearly 25,000 compared to the prior year period and remained on track to reduce 30,000 operational positions in 2026. The company plans to close an additional 27 buildings this year, most in the second quarter, and remains on track to achieve $3 billion in savings in 2026, he said.

International and Supply Chain Solutions: Revenue growth, shifting trade lanes

International revenue increased 3.8% year-over-year to $4.5 billion, driven by revenue per piece growth, Dykes said. However, International operating profit was $551 million, down $103 million year-over-year, “primarily due to trade policy changes,” with an operating margin of 12.1%.

Dykes said international ADV declined 6%, with export ADV down 5.5% and U.S. imports down 16.4%. The China-to-U.S. lane, which UPS described as its most profitable trade lane, declined 18.3% year-over-year. Tomé and Dykes both emphasized that trade lanes were shifting rather than disappearing, with Dykes noting growth in “international to international” traffic that does not touch the U.S.

Executives also addressed the impact of the Middle East conflict on operations. Dykes said UPS adjusted its network in the quarter, while Tomé said the company’s exposure in the region is “pretty small” but that airspace constraints were adding costs because UPS “can’t fly over the airspace.” She said UPS has about 2,000 employees in the Middle East and that they are safe. Tomé added that export and import revenue tied to the region was about $130 million in the first quarter.

In Supply Chain Solutions (SCS), revenue was $2.5 billion, down $176 million year-over-year, but operating profit rose $108 million to $206 million. SCS operating margin was 8.1%, up 450 basis points. Dykes said the revenue decline reflected lower Logistics revenue, including Mail Innovations, and lower air and ocean forwarding revenue, partially offset by healthcare logistics growth. UPS Digital revenue grew 19.9% year-over-year, he said.

Tomé highlighted healthcare as a growth priority, stating UPS recorded its first $3 billion healthcare revenue quarter, and said the company’s global healthcare portfolio has gained market share every year since 2021.

Outlook: Targets reaffirmed; second-quarter margin improvement expected

UPS reaffirmed its full-year 2026 consolidated targets, with expected revenue of approximately $89.7 billion and operating margin of approximately 9.6%. Dykes said diluted EPS is expected to be “about flat” to 2025.

For the second quarter, UPS expects consolidated improvement as several transition items roll off. In U.S. Domestic, Dykes said the USPS transition has been completed, the Amazon glide down and network reconfiguration are expected to wrap up by the end of June, and aircraft lease costs should decline as 767 deliveries continue. UPS expects U.S. Domestic second-quarter revenue to be up low single digits and operating margin between 7.5% and 8.5%.

Fuel was a major topic in the Q&A. Dykes said UPS was not updating guidance for fuel and emphasized that fuel surcharges, which adjust weekly based on published benchmarks, are designed to protect profit, though they may affect revenue alongside offsetting expense. Tomé said it was “too early” to predict what fuel might mean for the year.

On cash and capital allocation, Dykes said UPS generated $2.2 billion in operating cash flow in the first quarter. For 2026, UPS expects capital expenditures of about $3 billion, a pension contribution of $1.3 billion, and free cash flow of approximately $5.5 billion (including one-time payments for Driver Choice). UPS also plans to pay about $5.4 billion in dividends in 2026, subject to board approval.

In a final exchange, Tomé addressed IEEPA tariff refunds, saying UPS “is just a pass-through” that collects and remits tariffs. She said UPS processed 16 million IEEPA-related entries and remitted over $5 billion to the U.S. Treasury, and that the company began applying on April 20 for refunds tied to about 2.5 million entries and “a little under $500 million.” Tomé said UPS would remit refunded amounts back to customers, and Dykes added the company does not expect the refunds to impact UPS financial statements.

About United Parcel Service NYSE: UPS

United Parcel Service NYSE: UPS is a global package delivery and supply chain management company that provides a broad range of transportation, logistics and e-commerce services. Its core business centers on small-package delivery and last-mile distribution for business and individual customers, supported by a network of ground transportation, air cargo operations (UPS Airlines) and sorting facilities. In addition to parcel delivery, UPS offers freight transportation, contract logistics, warehousing, customs brokerage and reverse-logistics solutions designed to support domestic and international commerce.

The company traces its roots to 1907 when it began as a small messenger service in the United States and later evolved into the United Parcel Service.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.