First quarter 2025 earnings results issued today by Atlanta-based global freight transportation and logistics services provider UPS saw a slight decline.
Quarterly consolidated revenue, at $21.5 billion, fell 0.7% annually, and adjusted earnings per share, at $1.49 (topping Wall Street estimates of $1.41), rose $0.06 annually. Consolidated operating profit, at $1.7 billion, increased 3.3% annually.
Segment results for Q1 2025:
- U.S. Domestic Package Revenue, at $14.46 billion, increased 1.4% annually, paced by air cargo gains and a 4.5% gain in revenue per piece, at $13.06, offsetting a volume decline, with total average U.S. daily package volume down annually, to 17.443 million;
- International Revenue, at $4.373 billion, rose 2.7% annually, with average daily volume, at 3.346 billion, up 7.1% annually. Average daily revenue per piece, at $20.32, fell 2.6% annually; and
- Supply Chain Solutions revenue, at $2.713 billion, saw a 14.8% annual decrease, which UPS said was mostly due to its divestiture of Coyote
“In the face of a very dynamic environment, I’m pleased with our first quarter performance,” said UPS CEO Carol Tomé during the company’s earnings call earlier today. “I want to thank all UPSers, for delivering outstanding service to our customers. I also want to recognize the excellent progress our teams have made in executing the strategies we announced on our last earnings call. There’s a lot going on at UPS and in the world.”
Tomé addressed various strategic actions announced by UPS in January related to its network reconfiguration.
One action is the company’s plan to accelerate the glide down of Amazon volume it handles, based on an agreement UPS reached with Amazon to reduce the Amazon volume in the UPS network by more than 50% by June 2026 is focused on transitioning out Amazon’s fulfillment center outbound volume.
“This volume is not profitable for us, nor a healthy fit for our network,” she said. “The Amazon volume we plan to keep is profitable, and it is healthy volume. In other words, volume where we can add value, like returns and Seller Fulfilled outbound volume.
And she added in the first quarter, Amazon’s AVD (average daily volume) decline ran slightly ahead of plan, but is expected to be on plan by the end of the first half of this year, She also noted that Amazon glide down plans have been integrated into UPS’s Network of the Future initiative which she described as the largest network reconfiguration in the company’s history, in which UPS will optimize the capacity of its network with expected volume levels, as well as increased productivity through additional automation.
The second action is focused on UPS’s ability to manage hours and labor in line with changes in volume, all while staying within the confines of its labor agreement, according to Tomé.
“In 2024 we successfully closed 11 buildings, and the learnings from those closings became the blueprint for our network reconfiguration approach,” she said. “In this first phase, we will complete 164 operational closures, including 73 building closures by the end of June, and there’s more to come. While our building footprint is changing, our pickup and delivery footprint is not. We’ll just do it with fewer buildings for our larger customers. We are working with them to update their operating plan and for our SMBs in the areas where we’re closing buildings, UPS will still be accessible and convenient for customer drop offs and pickup due to our network of 5,300 UPS stores and 29,000 drop boxes and UPS Access Points, 90% of the U.S. population lives within five miles of these locations.”
And the third action is the company’s Efficiency Reimagined Initiative, which Tomé explained is designed to deliver $1 billion in savings in various ways, including the elimination of manual tasks and enhancing purchasing processes. She said UPS has made good progress on this front, with further acceleration in the second quarter.
Addressing tariffs, which Tomé described as a very complex and ever-changing topic, she noted that UPS’s U.S. import volume is roughly 400,000 pieces per day, representing less than 2% of the company’s global ADV, with revenue on its China to U.S. trade lane at about 11% of total international revenue, with revenue from other trade lanes to the U.S. representing roughly 17% of total international revenue.
“Our China to U.S. trade lanes are our most profitable trade lanes,” she said. “In the U.S., we’ve talked with our top 100 customers to understand how their business is being impacted, both directly and indirectly, by changes in trade policy. These customers have told us that they are exploring various options to address the tariffs, from absorbing the cost to pushing them into retail prices, to asking suppliers to help defray the expense. At this point, it remains an open question as to what path they will choose and what the potential impact could be on consumer demand and our business for the rest of the world.
Through the middle of April, she said UPS has interviewed nearly 45,000 international and freight forwarding customers to ascertain their shipping plans, adding that for small package shippers, over 95% of those customers have told UPS that they expect to maintain their current business model, while the rest are considering several options, including trade shifts, transportation mode shifts, or exiting the business.
“Most of these customers are also telling us that they are letting inventory levels sell off, which will lead to lower shipping activity, at least for now,” she said. “Freight forwarding customers are telling us that where they can they are looking to move from air freight to ocean freight. From an internal exposure perspective, we’ve looked at our purchasing and capital plans to estimate any potential tariff-related cost increases that may come our way. Roughly $2.7 billion of our annual direct purchases are sourced outside of the U.S. with little exposure to China.”
UPS CFO Brian Dykes stated on the call that the macro environment is highly uncertain due to changing trade policy and tariff uncertainty, adding that eventual outcomes could result in pressure in some parts of UPS’s business and create new opportunities in others. And he added that UPS is providing a second quarter outlook but not providing updates to its consolidated, full year outlook until there is more certainty in the macro environment
“We model several different scenarios for how the balance of the year might play out so that we can quickly pivot, continue supporting our customers and lean into growth,” he said. “With our assumptions for the second quarter in our international business, we have factored in announced tariffs and changes to the de minimis exemption. We also expect weakening demand on the China to the U.S. trade lane will be partially offset by two factors. First is growth on China to non-U.S. lanes, and second is growth from the rest of the world inbound to the U.S.”
When asked for a Peak Season outlook, amid inventory drawdowns, and ongoing economic uncertainty, Tomé said that while enterprise retailers have the wherewithal to manage through tariffs, but for smaller retailers, she said on an anecdotal basis, some are re-thinking their Peak Season orders.
“For us, from an exposure perspective, I think we’re in a pretty good place to have those ongoing discussions, given the uncertainty we have with the China tariffs,” she said. “That’s why it will be so helpful to have that resolved, however it gets resolved.”
CFO Dykes observed that peak planning relates to uncertainty and scenarios, noting that in which if tariffs get resolved, orders go in. And should things get delayed he said things could shift from ocean to air, which is good from a UPS perspective, and it can flex its network to help companies fulfill orders. But he also cautioned there is another scenario where tariffs get pushed up even further resulting in supply shock.
In terms of customer mix, Dykes said UPS saw strong ADV growth from SMB customers of 4%.
“In the first quarter, SMBs made up 31.2% of total U.S. volume,” he said. “This is the highest SMB concentration we’ve seen in 10 years, and it is driving meaningful change in overall volume and revenue quality.
Addressing variable costs related to the Amazon volume decline, Dykes said UPS plans to reduce total operational hours by approximately 25 million hours. As for semi-variable costs, he said UPS’s operational reduction target for 2025 is around 20,000 positions.
“Position changes are not only connected to the buildings we are closing, but will also be made across the entire U.S. network,” he said. “Our planned reductions are in line with the total Amazon volume decline, and our semi-variable cost-out efforts were on track through the first quarter.”
