As two of the world’s leading logistics companies, United Parcel Service (UPS) and FedEx are frequently compared, especially around the time of their earnings reports. Last week FedEx released its underwhelming earnings on both the top and bottom lines. UPS is scheduled to release their 3rd quarter earnings on October 24. Both UPS and FedEx are part of the GTM’s Golden 22. UPS, with its broad global reach and commitment to innovation, faces many of the same challenges as its key rival, FedEx, but their financial performances and strategic approaches have distinct differences.
Recent Financial Performance of UPS
UPS’s latest earnings report for Q2 2024 demonstrated the company’s resilience, despite a somewhat challenging market environment. UPS reported revenues of $21.8 billion, reflecting a 1.1% year-over-year decline from the previous year’s $22.06 billion. The primary drivers of this decline were weaker-than-expected consumer demand, rising labor costs, and inflationary pressures. Additionally, the company’s profit margins were affected by the 2023 labor contract with the International Brotherhood of Teamsters (IBT) union.
However, UPS continues to execute on its cost-cutting initiatives and operational efficiency programs. The company has implemented network optimization strategies to streamline package sorting and delivery, and is investing in automation and technology to enhance long-term productivity. These efforts have helped UPS maintain its adjusted operating margin at 8.91%, albeit lower than last year’s 11.6%.
Embed from Getty ImagesThe domestic U.S. market remains a stronghold for UPS, generating nearly 65% of its total revenue. However, the international segment saw a greater adjusted operating margin at 18.9%.
Upcoming Earnings Report and Outlook
UPS’ upcoming earnings report is particularly anticipated for a few reasons:
- Post-Teamsters Agreement Impact: A year into its 5-year agreement with the Teamsters, it is hard to determine whether the long-term effects of the contract is what is eating into the margins significantly enough to reduce the value to investors. Investors will be keen to see how UPS is managing these rising costs.
- Peak Holiday Season Outlook: The holiday season, which typically boosts demand for shipping services, will be a critical test for UPS. Many expect this quarter to provide early indicators of how the company will manage its busiest and most profitable time of year.
- Economic Slowdown: A global economic slowdown and recently China’s central bank aggressive stimulus, are expected to weigh on international revenues, and analysts will watch how UPS adjusts its pricing and operational model to navigate these headwinds.
FedEx Comparison
In contrast to UPS’ previous earnings report, FedEx reported slightly more negative results in its Q1 2025 report. The company posted revenues of $21.6 billion, a 0.5% year-over-year decrease, but it has been more aggressive in its cost-cutting measures. FedEx launched a comprehensive cost-saving initiative that included reductions in flight frequencies, optimized route networks, and workforce reductions. As a result, FedEx achieved an operating margin of 5.0% with an adjusted margin of 5.94%, down from 6.8% and 7.3% the previous year.
FedEx’s performance has benefited from its complete integration of FedEx Ground and FedEx Express on July 1, 2024, which has helped improve its operational efficiency, and which has been a critical part of its Drive Transformation Strategy.
Embed from Getty ImagesKey Differentiators Between UPS and FedEx:
- Cost Management: FedEx has been more aggressive in cutting costs compared to UPS, such as the integration of ground and express divisions. This was due in part to its need to improve profitability in a slower revenue growth environment. UPS, on the other hand, has been more conservative in this area, partly due to the constraints from its labor agreement.
- Capital Expenditure: UPS has maintained higher capital expenditures, particularly in technology and automation, which could enhance its operational efficiency over the long term. UPS has also sold off it’s Coyote Logistics to RXO, which will help it’s bottom line, although the upcoming quarterly results will not show that transaction. FedEx has also invested in automation but has been more focused on near-term cost reductions.
- Labor Relations: One major contrast is the state of labor relations. UPS has had to navigate the labor contract with the Teamsters union, leading to higher labor costs. FedEx, which predominantly relies on independent contractors for its Ground business, does not face the same union pressures but has different operational risks associated with that model.
- International Exposure: UPS has a more established international network, particularly in Europe and Asia, while FedEx has been focusing on expanding its international services. FedEx’s reliance on air freight services exposes it more significantly to fuel price fluctuations and economic slowdowns in global trade.
- US Postal Service: FedEx has been replaced with UPS to provide US Postal Service air carrier services for its Express mail. It will be determined how much of an impact this will have, especially in the upcoming holiday season.
Investor Sentiment and Market Reactions
In terms of stock performance, UPS shares have seen a year over year decrease of it’s stock price of (-)16.36% and a year-to-date decrease of (-)14.47% due in part to increased labor expense and softer-than-expected revenue growth. FedEx stock, on the other hand, has outperformed UPS over the same period with a year over year increase of 4.27% and a year-to-date increase of 1.03%, as investors have reacted positively to its cost-cutting strategies and margin improvements.
UPS’s ability to weather rising costs, particularly with its workforce, will be closely watched, while FedEx’s focus on transforming its business model seems to be paying off in the short term.
As UPS prepares to release its upcoming earnings report, investors will be looking for signs of how well the company is managing its increased labor expenses, optimizing its operations, and preparing for peak season demand. FedEx, while also facing challenges, has managed to outpace UPS in terms of cost management and limiting margin deterioration. The contrast between these two logistics giants highlights the different strategic approaches each company is taking to navigate an increasingly difficult market environment.
While both companies face similar challenges, UPS’s strong domestic market position and long-term investment in automation may position it well for future growth, while FedEx’s tighter control over expenses and strategic consolidation of services should help it maintain profitability in the near term.