United Parcel Service (UPS) Q1 FY26 earnings call: guidance and Q&A

Asked about the key drivers for the expected Q1 to Q2 margin improvement, especially given the lower-than-expected Q1 margin, and the role of fuel prices.

Brian explained that Q1 included unexpected weather and casualty costs (70bps impact), and Q2 will benefit from normal seasonal uplift, the cessation of temporary costs like aircraft leases and Ground Saver transition costs. Carol added that fuel surcharges protect profit, but the long-term demand impact of high fuel prices is uncertain, so guidance remains unchanged.

“The aircraft leases, as Carol and I have both mentioned, we continue to take deliveries. So the incremental costs associated with those is coming down. And we've now completed the ground saver outsourcing. So a lot of that transitional costs that we incurred in the first quarter now comes out.”

asked by Thomas Wadewitz · answered by Brian Dykes

Inquired about the potential for U.S. margins beyond the current year, considering the Amazon glidedown completion and future wage inflation.

Carol stated that the company's focus on premium segments (SMB, B2B, healthcare) and productivity initiatives create an opportunity for continued margin expansion. She highlighted that the second half of the year will be an inflection point, and 2027 is expected to look significantly better than 2026, supported by improved hub productivity (67.5% automated, 28% lower CPP in automated buildings).

“This is the year of inflection. So the back half of the year will look considerably different than the first half of the year. And as we exit this year, we have an opportunity to grow U.S. margins in a meaningful way with that between RPP and CPP.”

asked by Scott Group · answered by Carol Tomé

Asked about the Q2 financial benefit from the driver buyout program and Carol's long-term perspective on Amazon exposure and its defensibility.

Carol confirmed that the driver buyout program, which saw 7,500 positions eliminated by the end of April, will provide a benefit in Q2. Regarding Amazon, she noted it now constitutes 8.8% of total revenue (down from over 13%) and expressed satisfaction with the 'nutritive' partnership, particularly for returns, which represent 19% of all e-commerce sales.

“At the end of the first quarter, Amazon made up 8.8% of our total revenue. That's down from, it was north of 13%, not very long ago.”

asked by Christian Wetherbee · answered by Carol Tomé

Questioned why the Q2 International guidance was not raised, despite strong Q1 performance that exceeded expectations for both revenue and margin.

Brian attributed Q1 strength to the focus on premium segments in Europe and a less severe decline in the China-U.S. trade lane than anticipated. Carol added that the cautious Q2 outlook considers network costs from the Middle East conflict and potential disruption from Europe's de minimis elimination, despite underlying improvements.

“As we roll into the second quarter, remember, we're still lapping the -- May will be the lap of the liberation Day and the China de minimis elimination which will provide some improvement in step up.”

asked by Jonathan Chappell · answered by Brian Dykes

Asked if the timing of cost takeout initiatives had shifted due to union discussions and why the full-year guidance was reaffirmed rather than raised, given strong Q1 results and positive underlying trends.

Carol confirmed no shift in cost takeout pace, stating the underlying business is performing better than expected, but it's too early in the year to raise guidance due to external uncertainties like the Middle East war, fuel prices, and consumer confidence. Brian reiterated the strong health of the underlying business, including SMB growth and expected Amazon volume growth in H2.

“It is early in the year to raise. The underlying business is better than we thought. If I look at the results in April, we're going to exceed the plan that we put in place.”

asked by David Vernon · answered by Carol Tomé

Sought clarification on the Driver Choice program's success, given conflicting news reports, and whether it met company expectations.

Carol clarified that the Driver Choice program was oversubscribed, and UPS accepted the targeted 7,500 positions, which aligns perfectly with their internal plans and cost-out objectives. Brian confirmed that this aligns with the $3 billion cost-out target for the year.

“Our program was oversubscribed. So perhaps that's the basis for some of the articles. So we had more drivers applying than we could accept. We accepted the 7500, we couldn't be more happy.”

asked by Stephanie Moore · answered by Carol Tomé

Asked about the long-term potential for International margins to return to high teens levels and the factors required to achieve this.

Carol explained that normalization of trade lanes, particularly the China-U.S. route, will contribute to margin improvement. Additionally, strategic investments in premium opportunities in Europe and a shift away from low-margin e-commerce will significantly improve domestic margins in Europe, collectively driving the International business back to mid-to-high teens margins.

“This is a moment in time because of the impact of the tariffs. This is going to normalize over time. And in fact, with the elimination of the EBA tariff and going back now to the 122 tariffs of 10%, we're actually seeing trade lanes move from red to orange yellow in the subpieces grain. So things are starting to normalize. So that means the margin will get back up.”

asked by Jordan Alliger · answered by Carol Tomé

Inquired about the process and timing for IEEPA tariff refunds and whether UPS passes these refunds through to its end customers.

Carol clarified that UPS acts purely as a pass-through for IEEPA tariffs, having remitted over $5 billion to the U.S. Treasury. The company is applying for refunds for 2.5 million entries, totaling approximately $500 million, for tariffs incurred this year, with applications starting April 20. She confirmed that once received, these funds will be remitted directly back to customers, with no impact on UPS's financial statements.

“As soon as we get that money, we're going to remit it right back to our customer.”

asked by Ravi Shanker · answered by Carol Tomé