UPS Fired Amazon. Was It The Smart Move?

Yes, the decision by UPS (NYSE: UPS) to cut 50% of Amazon's delivery volume from the start of 2025 to the middle of 2026 was the right strategic one and completely in line with its business model. However, it's not been without execution difficulties, and the market is taking a "show me first" approach when judging its merits.

Why UPS agreed to cut Amazon volumes

CEO Carol Tome's "better, not bigger" corporate strategy focuses on moving away from chasing volume growth and building network scale toward more targeted, higher-margin offerings, such as healthcare, small and medium-sized businesses (SMBs), and higher-margin business-to-business (B2B) e-commerce.

In addition, UPS is investing in productivity-enhancing technologies (automation, smart facilities, and technology upgrades) that enable site rationalizations and create a more productive network.

In a nutshell, it's about aiming for higher revenue per piece while reducing cost per piece, ultimately leading to a higher-margin company. Consequently, eschewing low- or even negative-margin deliveries for Amazon (which often involve delivering bulky, inefficiently packed items to myriad difficult-to-find residential addresses) is fully in line with the strategy.

Why UPS stock has declined since the announcement

Unfortunately, the transportation company's stock is down 10.5% since the announcement, driven by concerns about its margin performance. There are genuine concerns over the quality of UPS' earnings in 2026. For example, although management raised its implied full-year adjusted earnings guidance on its last earnings call, it actually lowered its implied margin guidance.

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At the start of the year, UPS guided to full-year revenue of $89.7 billion and an adjusted operating profit margin of 9.6%, implying an adjusted operating profit of $8.61 billion. Fast forward to the second quarter earnings release, and management now expects $8.65 billion in full-year adjusted operating profit on revenue of $91.2 billion.

While that's an improvement, bullish readers should note that it implies a margin of just under 9.5%, which is lower than the previously forecast 9.6%.

UPS quality of earnings

The market may appear to be nitpicking here, after all, management raised both revenue and earnings guidance, but a close look at the numbers gives cause for concern from an unexpected area: fuel. Digging into its SEC filings, UPS raised its fuel surcharge by $1.173 billion in the first six months. Against this, third-party fuel surcharges went up by $80 million, and fuel expenses increased by $664 million, totaling $744 million.

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While it's not clear if the difference of $429 million dropped down into profit (UPS also said it was impacted by higher fuel and network costs due to the Middle East conflict), it is clear that increasing fuel surcharges are a massive part, if not all, of the increase in revenue expectations of $1.5 billion for the full year.

Moreover, if you do assume the $429 million dropped down into adjusted operating profit in the first six months, then the fuel surcharge accounts for more than the $400 million implied increase in full-year adjusted operating profit guidance.

The bottom line

Higher fuel surcharges are not a sustainable way to increase revenue and earnings, and even with them, it appears UPS isn't meeting its margin expectations. That's disappointing considering an improved margin was a key aim of the Amazon glide-down.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool has a disclosure policy.