UPS just revealed a $92.6 billion surprise, and it’s bad news for one of its biggest customers

UPS has announced a significant shift in its partnership with Amazon, a move that is proving to be financially beneficial. The delivery company reported its Q3 results on Tuesday, surpassing expectations as it revealed that downsizing its Amazon delivery services was a wise decision. CEO Carol Tomé expressed in the earnings call that the company is experiencing premium growth, improved revenue quality, and increased operating leverage through a more efficient network.

Despite initial investor concerns about the decision, UPS has managed to improve its revenue outlook for the year, raising expectations from $91.2 billion to $92.6 billion. The company's shares have risen by around 5% following the news. UPS revealed its decision to scale back its partnership with Amazon in early 2023, aiming to reduce its Amazon delivery volume by half by this summer.

The CEO explained that while Amazon is the largest customer, it is not the most profitable one, and the high-volume, low-margin arrangement with Amazon was "very dilutive to the US domestic business." Despite cutting down on small, frequent deliveries, UPS will continue to handle Amazon returns and small deliveries, a business Tomé noted that they handle "very, very well."

The pandemic-driven surge in deliveries boosted UPS's stock in 2020, but its shares are now worth only half of what they were four years ago. FedEx, UPS's chief rival, has seen a consistent rise in its shares during the same period, gaining nearly the same value that UPS has lost. Both companies are making efforts to undo some of their pandemic-inspired expansions, as consumers were ordering more to their homes than ever before during the pandemic.

UPS announced earlier this year that it would lay off 30,000 employees and close dozens of warehouses as part of its plan to reconfigure its U.S. network, a move that followed 48,000 job cuts made in 2023. A spokesperson for UPS described it as "the largest U.S. network reconfiguration in UPS history." The shipping giant remains committed to transforming into a "nimbler, more efficient operation" by winding down pieces of its business that are not delivering.