United Parcel Service (UPS)

Parcel delivery company UPS (NYSE:UPS) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales fell by 3.8% year on year to $21.4 billion. The company expects next quarter’s revenue to be around $24 billion, close to analysts’ estimates. Its non-GAAP profit of $1.74 per share was 33% above analysts’ consensus estimates.

Company Overview

Trademarking its recognizable UPS Brown color, UPS (NYSE:UPS) offers package delivery, supply chain management, and freight forwarding services.

The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors offering similar products include FedEx (NYSE:FDX), GXO (NYSE:GXO), and Amazon (NASDAQ:AMZN).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, United Parcel Service grew its sales at a sluggish 2.2% compounded annual growth rate. This was below our standards and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. United Parcel Service’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2% annually. United Parcel Service isn’t alone in its struggles as the Air Freight and Logistics industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, United Parcel Service’s revenue fell by 3.8% year on year to $21.4 billion but beat Wall Street’s estimates by 2.4%. Company management is currently guiding for a 5.1% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 2.4% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its newer products and services will not catalyze better top-line performance yet.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

United Parcel Service has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 22.8% gross margin over the last five years. Said differently, United Parcel Service had to pay a chunky $77.18 to its suppliers for every $100 in revenue.

United Parcel Service has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 10.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, United Parcel Service’s operating margin decreased by 2.4 percentage points over the last five years. Many Air Freight and Logistics companies also saw their margins fall (along with revenue, as mentioned above) because the cycle turned in the wrong direction. We hope United Parcel Service can emerge from this a stronger company, as the silver lining of a downturn is that market share can be won and efficiencies found.

This quarter, United Parcel Service generated an operating margin profit margin of 8.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

United Parcel Service’s flat EPS over the last five years was below its 2.2% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into United Parcel Service’s earnings to better understand the drivers of its performance. As we mentioned earlier, United Parcel Service’s operating margin was flat this quarter but declined by 2.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For United Parcel Service, its two-year annual EPS declines of 12.9% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q3, United Parcel Service reported adjusted EPS of $1.74, down from $1.76 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects United Parcel Service’s full-year EPS of $7.53 to shrink by 10.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

United Parcel Service has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 7% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that United Parcel Service’s margin dropped by 3.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although United Parcel Service hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 31.8%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, United Parcel Service’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

United Parcel Service reported $6.76 billion of cash and $29.21 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $12.56 billion of EBITDA over the last 12 months, we view United Parcel Service’s 1.8× net-debt-to-EBITDA ratio as safe. We also see its $201 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see United Parcel Service beat analysts’ revenue and EPS expectations this quarter. The company said it’s eliminated roughly 34,000 jobs from its workforce as part of its plan to turn around the business. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 18% to $105.35 immediately following the results.

Updated: December 4, 2025 at 10:35 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own United Parcel Service, you should also grasp the company’s longer-term business quality and valuation.

We see the value of companies helping their customers, but in the case of United Parcel Service, we’re out. To kick things off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

United Parcel Service’s P/E ratio based on the next 12 months is 14.3x. This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $103.62 on the company (compared to the current share price of $95.06).