UPS Q2 2026 Earnings: Amazon Exit Lifts Domestic Margins as Full-Year Outlook Rises

UPS delivered a stronger second quarter as its planned Amazon volume reduction and U.S. network reconfiguration moved from a drag on results to a source of operating leverage. Revenue rose 7.6% to $22.8B, while adjusted operating profit increased 12% to $2.1B and adjusted diluted EPS reached $1.76.

The central development was in U.S. Domestic, where revenue per piece rose faster than cost per piece despite a 3.3% decline in average daily volume. UPS has now completed the Amazon glide-down, removing roughly 2 million lower-yielding packages per day over 18 months, and management raised its full-year revenue, operating-profit and EPS outlook.

As Reported on the Call

UPS said its second-quarter GAAP results included $891M of after-tax transformation charges, or $1.05 per diluted share, primarily tied to employee separation costs under its Driver Choice workforce-reduction program.

The Bigger Story

UPS has completed the most disruptive phase of its U.S. restructuring: the planned reduction of lower-quality Amazon volume and the related resizing of its network. Management said the company eliminated approximately 2 million Amazon packages per day over the past 18 months and removed about $4.5B of related expense, with further savings expected through the end of 2026.

The investment case is increasingly centered on whether UPS can replace lost Amazon volume with higher-yielding small-business, healthcare, business-to-business and premium logistics shipments without eroding pricing. The second quarter provided evidence supporting that transition. Total U.S. volume still declined, but volume grew when excluding Amazon and other intentionally reduced lower-yield business, according to management.

The network’s cost structure also appears to be improving. UPS closed 45 facilities in the first half, reduced nearly 30,000 operational positions from a year earlier and said it expects to close nearly 150 buildings across 2025 and 2026. Automation is becoming a larger component of the network, with 68.5% of U.S. volume flowing through automated facilities at the end of the quarter, up from 64% a year earlier.

Management said cost per piece is about 28% lower in automated versus nonautomated facilities. That does not guarantee future margin expansion, but it explains why UPS believes it can maintain positive operating leverage as higher-quality volume returns.

Revenue and Operating Performance

U.S. Domestic revenue increased 6% to $14.9B even as average daily volume fell 3.3%. The apparent disconnect reflects a 9.3% increase in revenue per piece, with more than half of the improvement attributed to base-rate growth and customer mix, and the remainder largely tied to fuel.

The volume decline was concentrated in the planned Amazon reduction. Ground average daily volume fell 3.5%, while air volume declined 2.3%. Excluding Amazon, air volume increased 1.2%, driven by business-to-business and healthcare customers.

Small and medium-sized business volume was a notable bright spot. SMB average daily volume increased 4.3%, with growth across nearly all industries and particular strength in high-tech and healthcare. SMB customers represented 34.5% of U.S. volume, up 250 basis points from the prior year.

Business-to-business volume remained under pressure, declining 3.2%, although that was 190 basis points better than the first-quarter decline. B2B accounted for 43.8% of U.S. volume, with high-tech and automotive cited as areas of relative strength.

International revenue increased 12.5% to $5B despite a 5.8% decline in average daily volume. Revenue per piece rose 18.9%, with slightly more than half of that increase coming from fuel. Geographic mix also improved as Asian trade lanes began to rebalance.

International volumes remained uneven. Asia-to-Asia export volume increased 13.6%, and UPS returned to year-over-year growth on the China-to-U.S. lane beginning in May, when comparisons began to lap the elimination of the de minimis exemption for Chinese imports. However, domestic European volume declined, while management said tariffs affected Canada-to-U.S. traffic and Middle East disruption weighed on some European export activity.

Supply Chain Solutions continued to improve, with revenue rising by $207M to $2.9B. Forwarding revenue increased 8.1% on higher international airfreight rates, while logistics revenue rose 4.3%, led by healthcare logistics. UPS Digital, including Roadie and Happy Returns, posted revenue growth of more than 30%.

Profitability and Margins

Adjusted consolidated operating margin improved to 9.2%, up 40 basis points year over year and 300 basis points sequentially from the first quarter. The improvement was primarily driven by the U.S. Domestic business, where operating profit rose 21% to $1.2B and margin reached 8.0%.

U.S. Domestic expense rose 4.9%, slower than the 6% revenue increase. Management said revenue per piece grew 130 basis points faster than cost per piece, demonstrating the operating leverage it expected from the reconfigured network. Fuel and purchased transportation accounted for more than half of the expense increase.

The International segment was the exception. Its operating profit fell $59M to $623M, and margin declined 120 basis points to 12.4%. Management attributed the margin pressure primarily to fuel, which has a larger impact on the air-heavy international cost base. The company also incurred added costs from rerouting around Middle East disruption and using leased aircraft capacity.

Supply Chain Solutions generated $291M of operating profit, up $79M, while margin expanded 220 basis points to 10.2%. This was the segment’s third consecutive quarter of year-over-year margin expansion.

UPS reported $891M in after-tax transformation charges during the quarter, primarily employee separation costs associated with the Driver Choice program. Those charges are excluded from the adjusted results discussed on the call.

Demand, Customers and Pricing

Management’s strategy is now focused on replacing lower-quality volume with premium services and more defensible customer relationships. Healthcare, SMB, B2B and returns are central to that effort.

Healthcare revenue exceeded $3B for the second consecutive quarter. UPS added 27 temperature-controlled cross-dock facilities to support cold-chain shipments and said the new capabilities allow it to manage temperature-sensitive healthcare products through its own air, ground and warehousing assets. Management said cold-chain revenue is growing at a double-digit rate, although it did not provide a specific growth figure.

Digital Access Program revenue was $1.4B globally, marking its third consecutive quarter above $1B. UPS also reported 34% growth in B2B Digital Access Program average daily volume. The company views its returns network, including 5,500 UPS Stores and Happy Returns, as another differentiator in competing for e-commerce and merchant relationships.

UPS emphasized RFID deployment as an operational and commercial capability. RFID sensing is now deployed across all U.S. delivery facilities and package cars, and the company is expanding the system internationally. Management said RFID-enabled capabilities at customer locations now cover more than 2.2 million packages per day and claimed that customers using RFID at origin have shown no churn. That claim is management commentary rather than a disclosed financial metric.

What is United Parcel Service’s guidance and outlook?

UPS raised its full-year 2026 outlook following a first half that management said exceeded internal expectations.

Management now expects:

• ·Consolidated revenue of approximately $91.2B.
• ·Consolidated operating profit of approximately $8.65B.
• ·Diluted EPS of approximately $7.22.
• ·U.S. Domestic revenue of approximately $60B, up about 1% year over year.
• ·U.S. Domestic operating margin of approximately 7.5% for the full year.
• ·International revenue growth in the mid-single digits and operating margin in the mid-teens.
• ·Supply Chain Solutions revenue growth in the high single digits and operating margin of 10% to 11%.
• ·Free cash flow of approximately $5.5B.

For the third quarter, UPS expects U.S. Domestic average daily volume to decline by a mid-single-digit percentage, reflecting normal seasonal patterns and the full-year comparison against Amazon volume that was eliminated during 2026. U.S. revenue is expected to be approximately flat year over year, with a domestic operating margin of roughly 7%.

Management expects U.S. Domestic margin of approximately 8.8% in the second half, implying year-over-year expansion in both the third and fourth quarters. It expects revenue per piece growth to moderate from 9.3% in the second quarter to roughly 4% to 4.5% as the company laps prior-year pricing actions, while maintaining a 50- to 100-basis-point spread between revenue-per-piece and cost-per-piece growth.

Balance Sheet, Cash Flow and Capital

UPS generated $3.1B in cash from operations and $1.6B in free cash flow year to date. Free cash flow included one-time Driver Choice payments made in the second quarter.

The company ended the quarter with $4.7B in cash and no outstanding commercial paper. UPS has paid $2.7B in dividends so far this year and still plans to distribute approximately $5.4B in dividends during 2026, subject to board approval.

Full-year capital expenditures are expected to be about $3B, and UPS plans to complete a $1.3B pension contribution. Looking beyond 2026, management said it views capital spending near 3.5% of revenue as an appropriate run rate, below the historical $4.5B to $5B annual spending range when UPS was building out its global network.

What Investors Should Watch

1. Domestic Volume Growth Excluding Amazon

UPS expects ex-Amazon volume growth across U.S. segments in the second half. Sustained growth in SMB, B2B and healthcare would demonstrate that the network can absorb higher-quality demand after the Amazon reduction.

2. Revenue-Per-Piece Versus Cost-Per-Piece Growth

Management is targeting a 50- to 100-basis-point revenue-per-piece advantage over cost-per-piece growth. This spread is the operating mechanism behind the domestic margin recovery, particularly as reported pricing growth normalizes in the second half.

3. International Margin Recovery

International revenue quality improved, but operating profit declined due to fuel, longer flight distances and Middle East-related rerouting costs. A return toward management’s mid-teens full-year margin outlook depends on trade-lane momentum and the absence of further disruption.

4. Transformation Savings and Facility Closures

UPS still expects approximately $3B in 2026 benefits from the Amazon glide-down, network reconfiguration and efficiency initiatives. Investors should monitor whether additional building closures and labor reductions translate into lower unit costs without compromising service.

5. Cash Flow After Restructuring Costs and Dividends

The company expects $5.5B in free cash flow despite restructuring payments, a $1.3B pension contribution and about $3B of capital spending. Cash conversion matters because planned 2026 dividends of roughly $5.4B leave limited room for execution shortfalls.

AlgovestIQ Takeaway

UPS’s second quarter suggests that the Amazon glide-down is becoming an earnings tailwind rather than a restructuring burden. The company delivered higher U.S. Domestic revenue and substantially higher operating profit despite lower total package volumes, supported by pricing, improved customer mix and a leaner network.

The domestic margin recovery is the most important evidence in the quarter. U.S. Domestic operating margin expanded to 8.0%, up 100 basis points from a year earlier and 400 basis points sequentially. That progress supports management’s argument that its automation investments, facility closures and workforce reductions have lowered the structural cost of moving each package.

However, UPS still must prove that premium-volume growth can persist after the Amazon comparisons fully roll through. SMB volume is growing, healthcare logistics is expanding and B2B trends improved sequentially, but total U.S. volume remains negative and management expects another mid-single-digit volume decline in the third quarter.

International is also a mixed part of the story. Revenue grew strongly and Asian trade-lane activity improved, but fuel and geopolitical disruption reduced operating profit. The segment’s ability to restore margins while navigating tariffs, changing de minimis rules and unstable trade lanes will be important to the company’s second-half earnings delivery.

The central investment question has shifted from whether UPS can complete its restructuring to whether it can convert a smaller, more automated network into durable profitable growth. Evidence of sustained ex-Amazon volume growth, continued unit-cost discipline and improving international margins would strengthen that thesis. A weaker pricing environment, renewed trade disruption or insufficient premium-volume replacement would challenge it.