Dumping Amazon's Low-Priced Parcels! United Parcel Service (UPS.US) Focuses on High-Profit Business, Significantly Raises Full-Year Revenue Guidance to $91.2 Billion

According to Zhitong Financial APP, UPS (UPS.US) has raised its full-year sales forecast, indicating that as the courier company shifts its business focus from low-margin e-commerce parcels to more profitable packages, it is benefiting from strong pricing power. The financial report shows that the company's Q2 revenue reached $22.8 billion, a year-on-year increase of 7.5%, exceeding expectations by $960 million; adjusted earnings per share were $1.76, higher than the expected $1.67.

In its quarterly earnings statement released on Tuesday, UPS stated that revenue for the year will reach about $91.2 billion, higher than the previous forecast of $89.7 billion. This figure beats the analyst average estimate of $90.4 billion. The company expects adjusted earnings per share of $7.22, also above expectations.

This improved outlook is a positive signal, marking that UPS is completing an 18-month effort to shed low-margin business from Amazon. Amazon has long been its largest client, but its business has failed to significantly boost UPS’s net profit.

The company is betting on a more streamlined shipping network, stable pricing strategies, and a more profitable business mix to strengthen itself amid prolonged flat demand.

CEO Carol Tomé said in the statement, "Our second-quarter results mark a significant, expected turning point in our operating performance." She previously hinted that the company would reach an inflection point by mid-year, as per the plan to clear out over half of the Amazon package volume from its network by June.

Tomé said that the low-margin e-commerce parcels "diluted" profits, and as an alternative, UPS is now focusing on fewer but higher-margin packages. These include complex healthcare shipments, international packages, and services for small and medium-sized enterprises (SMEs)—these SMEs are less likely to receive discounts compared to large enterprise clients.

Meanwhile, competition in parcel delivery is intensifying. In recent months, Amazon has repeatedly announced expanding its logistics network to third-party merchants, which investors see as a threat to traditional carriers. However, UPS and its rival FedEx argue that these alternative carriers are built precisely for the e-commerce packages that UPS and FedEx have already willingly given up.

Even so, this means UPS and FedEx are competing for a smaller market share. Demand for direct-to-consumer e-commerce parcels continues to grow, while business and industrial demand remains stagnant.

Although high oil prices prompted by the Middle East war have dragged on the overall economy, UPS—like the broader freight sector—has offset rising costs through surcharges.

Investors also remain cautious about cost pressures, especially as UPS faces rising labor costs related to the expiration of its existing labor agreement with the Teamsters union and the ensuing new round of negotiations.