United Parcel Service announced on Wednesday that it will slash business with a key customer along with mixed fourth-quarter results. UPS stock dived to a multiyear low.
The delivery giant said it has "reached an agreement in principle with its largest customer" — Amazon.com — "to lower its volume by more than 50% by the second half of 2026."
On Wednesday, UPS also revealed it has cut ties with USPS (United States Postal Service) for last-mile delivery of SurePost packages. Management said that it expects those strategic moves and other efficiency initiatives to drive $1 billion in costs savings.
Why UPS Says It's Cutting Amazon Business
On an earnings call, UPS CEO Carol Tome explained how the "deliberate" shift away from Amazon would eventually benefit her company and its shareholders.
"Amazon is our largest customer, but it's not our most profitable customer," Tome told analysts. "Its margin is very dilutive to the U.S. domestic business."
She described small packages as a "slow growth" market. Tome said: "The result of this change will be lower overall volume levels but an improved customer mix at a significantly higher revenue per piece."
The move also reduces customer "concentration" risk and will lower fixed costs to support those volumes, Tome said. So when the Amazon contract came up for renewal, the company decided to "accelerate the glide down" of deliveries for the e-commerce giant, a customer for nearly 30 years. "Because if we take no action, it will likely result in diminishing returns," Tome added.
Combined, the Amazon and USPS actions will lead to a more profitable and agile UPS "that is growing in the best parts of the market," Tome said, according to a FactSet transcript of the Q4 earnings call.
UPS Earnings Continue To Recover
In Q4, UPS earnings rebounded 11% to $2.75 per share, beating estimates for $2.53. Revenue recovered 1.5%, year over year, to $25.3 billion, but that was a slight miss. It marked the second straight quarter of earnings and sales gains for the shipper following several down quarters.
By segment, domestic revenue rose 2% and international revenue grew 7%, on the back of volume and pricing gains, the company said. Meanwhile, supply chain revenue fell 9% amid the divestiture of Coyote. UPS sold Coyote Logistics to RXO, a transportation and logistics company based in Charlotte, N.C., last year.
For full-year 2024, UPS reported a 12% earnings slide despite a recovery in the second six months. That extended a 32% earnings drop in 2023. Those declines came amid the so-called global freight recession.
UPS Stock Falls On Weak 2025 Outlook
For 2025, UPS on Thursday forecast 2025 revenue of $89 billion and operating margin of 10.8%. That would compare to 2024 revenue of $91 billion and operating margin of 9.3%.
The company said it plans capital expenditures to the tune of $3.5 billion, dividend payments around $5.5 billion, and share repurchases of $1 billion.
Shares plunged 14.1%, to 114.90, in Thursday's stock market action. UPS stock hit its lowest level since mid-2020 but pared losses into the close. Rival FedEx fell 2.1%, hitting its lowest level intraday since mid-October.
FedEx and Amazon broke up in 2019. Reports last year said the companies were considering teaming up again on package returns.
Amazon stock shed 1%, just holding a buy point, ahead of earnings next week. RXO shares fell a fraction.
Please follow Aparna Narayanan on X @IBD_Aparna for more coverage.
