United Parcel Service, Inc. (UPS) Earnings & Analysis

Latest quarter

UPS reported Q2 FY2026 revenue of $22.8 billion, up 7.60% from $21.2 billion a year earlier. Revenue exceeded the consensus of $21.8 billion, with reported revenue standing 4.98% above that measure. Adjusted EPS, as the consensus counts it, was $1.76, compared with consensus adjusted EPS of $1.65, or 6.67% above the consensus.

The filing said higher fuel-surcharge revenue, revenue-quality actions, higher-yielding volume and the AHG acquisition contributed to revenue growth, partly offset by lower average daily volume and lower Mail Innovations volume. UPS reported diluted EPS of $0.71, down −53.0% from $1.51, while gross margin declined to 75.2% from 79.6% and operating margin declined to 4.07% from 8.59%. The filing attributed higher expenses to Driver Choice separation costs, Ground Saver outsourcing, purchased transportation, aircraft leases, fuel and charter costs associated with Middle East network disruptions.

Free cash flow was $282.0 million, compared with −$749.0 million a year earlier. The company’s Q2 operating-margin outlook was 7.50% to 8.50%; reported operating margin of 4.07% was below that outlook.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the Q1 2026 earnings call, Brian Dykes said UPS expected U.S. domestic average daily volume to decline by the mid-single digits for the full year because of its actions involving Amazon, while revenue per piece was expected to grow by the mid-single digits. He said the company expected the Amazon glide-down and network reconfiguration to wrap up by the end of June, and said fewer replacement-aircraft leases would be needed as 767 deliveries continued.

Dykes said UPS expected the completion of Ground Saver outsourcing, the end of transition costs and lower aircraft-lease expense to help bridge U.S. domestic profitability from Q1 into Q2. He also said fuel surcharges were designed to offset fuel-cost changes, although he said the company could not determine how long higher fuel prices would persist or the eventual demand effects.

Carol Tomé said UPS was directing its commercial focus toward SMB, B2B and healthcare customers. Dykes said the company was seeing incremental momentum in B2B and industrial business, while international trade was moving through routes that did and did not touch the U.S. He said UPS had not seen a material shift in its expectation for low-single-digit U.S. small-package market growth.

Analysts asked management about the path from Q1 margin to Q2 and about fuel costs. Dykes attributed the expected sequential change to normal seasonal uplift, lower aircraft-lease expense and the completion of the Ground Saver transition. He said UPS was not updating for fuel because it needed further clarity on the duration of elevated prices. Tomé said the company was monitoring the prospective elimination of de minimis in Europe, which she said could be disruptive but whose impact UPS could not quantify.

Dykes said UPS was targeting $3.0 billion in savings in FY2026 through the Amazon glide-down and network reconfiguration. He said FY2026 capital expenditures were expected to be about $3.0 billion, including investments in the network, while free cash flow was expected to be approximately $5.5 billion, including one-time Driver Choice payments.

Guidance

UPS’s July results release raised its FY2026 consolidated revenue outlook to $91.2 billion from $89.7 billion. The company also said it was raising FY2026 non-GAAP adjusted operating profit to $8.7 billion and non-GAAP adjusted diluted EPS to $7.22. UPS continued to expect FY2026 capital expenditures of $3.0 billion, dividend payments of $5.4 billion, and an effective tax rate of 23.0%.