Is There Hope Left for UPS Investors?

Key Points

• UPS's package volume and revenue have slipped in 2025.

• The company is in the midst of a cost-reduction initiative that could save it $3.5 billion.

• Hope remains for long-term investors, especially as UPS trades up for higher-margin business.

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When you think of United Postal Service (NYSE: UPS), you might think of brown trucks, brown packages, or the old advertising slogan, "What can Brown do for you?"

But for those who have been invested in UPS stock over the last year, the one thing on their mind is likely the downward spiral this logistics giant has failed to get out of.

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Since the start of the year, UPS has fallen about 31%. It has also fallen over 60% from its pandemic-era highs in early 2022.

As someone who has been watching this stock for a while, I can attest to the feeling -- or frustration -- that every week seems to bring more bad news. For example, UPS recently terminated its acquisition of Mexican company Estafeta, a deal intended to strengthen its presence in Mexico. On the heels of that news, an analyst at BMO downgraded his price target from $125 to $96 (the stock trades at about $85).

The stock fell about 4%, and though it has regained some ground, the whole affair shows how volatile this industrials stock has become as its pandemic-era highs fade out of view.

Is there any hope for UPS? Or should investors brace for a new normal?

How UPS got here

UPS, a darling stock of the pandemic, has since experienced a double-whammy of softer-than-anticipated package deliveries and its own pruning of lower-margin business.

In regard to the former, the reason is simply this: Demand for packages was hot during the pandemic, with locked-down lifestyles leaving consumers with few options but to order things online. Now that the pandemic feels very much a part of the past, e-commerce hasn't grown quite as substantially as it did between 2019 and 2021.

At the same time, UPS is also contending with stronger competitors, especially its frenemy Amazon. Average daily volume in the U.S. fell by over 7% in the second quarter, while UPS's operating margin was also 7%. For those who remember UPS's double-digit margins during the pandemic, this decline is hard to ignore.

Speaking of Amazon, UPS also announced earlier this year that it will cut Amazon package volume roughly 50% by June 2026. The reason is understandable -- Amazon deliveries have low margins -- but since the tech giant accounted for about 11.8% of UPS's revenue in 2024, many investors are wondering how the company will make up the difference.

Throw in tariff headwinds and decreased volume on UPS's hottest route -- U.S. to China -- and it's not hard to fathom the downward spiral UPS has been on.

The hope that remains

For all the setbacks -- and there will likely be more -- UPS's competitive moat remains intact. This 118-year-old company still runs one of the densest global delivery networks on the planet, with an average of 22.4 million packages delivered per day.

That doesn't immunize UPS from structural complications, like carrying one of the most expensive unionized labor forces in the industry. But it does make it difficult for competitors to totally eclipse UPS's global logistics leadership.

Image source: UPS.

On that note, we can't forget that UPS is in the midst of a $3.5 billion cost-reduction plan, which includes closing dozens of facilities and trimming about 20,000 jobs. The hope is that this "Efficiency Reimagined" initiative will take enough cost out of the system to help widen its margins and regain some shareholder confidence. Indeed, in the second quarter, UPS's consolidated operating margin widened from 7.7% to 8.6%, with a 9% projection for the next quarter.

As far as cutting package volume from Amazon, the real strategy is replacing it with higher-margin volume, like healthcare and small-business freight. Both of these carry higher margins than your typical consumer package and tend to be steadier in economic cycles, which could smooth earnings when consumer demands slip.

Of course, UPS still has work to do. The road to stronger earnings will likely pass through a few more lackluster quarters. For those who can stick with it over the long run, I think there's hope this transportation giant can still bounce back.

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Steven Porrello 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.