UPS Earnings: Economic Fallout from Tariffs to Pressure Package Demand and Margin Rebound

Key Morningstar Metrics for United Parcel Service

• Fair Value Estimate: $130.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of United Parcel Service’s Earnings

UPS’ UPS first-quarter revenue fell 1% year over year, as the 2024 Coyote Logistics divestiture more than offset higher US domestic package yields (including base-rate increases and favorable mix). Total adjusted margin increased on continued domestic US network reconfiguration and (likely) customer mix.

Why it matters: Revenue beat our expected run rate, but that’s due to shippers pulling forward international shipments ahead of tariffs along with the timing of the Amazon volume glide down. Total margin missed our forecast because of softer-than-expected international package profitability.

• Domestic package volumes fell 3.5% year over year on lower Amazon-related volumes. The firm also noted that business-to-consumer demand softened later in the quarter. Further, it sounds like retailers started pulling back on inventory restocking amid declining consumer sentiment.
• Adjusted domestic margin improved 110 basis points to 7%. That said, second-quarter margin guidance (7.5%) is trailing our previous full-year forecast (8.4%) and the firm’s previous full-year guidance (8.8%). Citing the uncertain macro backdrop, UPS didn’t update full-year guidance.

The bottom line: We are now anticipating a tariff-induced US economic slowdown. As a result, we are incrementally tempering our 2025 and 2026 revenue and margin assumptions for wide-moat UPS and expect to lower our DCF-derived $130 fair value estimate around 4%-6%.

• We were already assuming tariffs preclude a US industrial production rebound (for business-to-business package volumes) this year, but we are now baking in a slowdown for business-to-consumer volumes as well.
• Uncertainty is high, but we see long-term upside opportunity to UPS’ shares as the firm rationalizes network capacity in accordance with Amazon related volume declines, and amid an eventual recovery in B2B package volumes.