I've been making the case for a while that United Parcel Service (UPS 3.26%) was poised to be a great turnaround story. It's too soon for me to be able to brag that I was right. However, UPS stock has risen around 25% over the last four months – an encouraging trend.
UPS reported its 2025 full-year and fourth-quarter results on Tuesday, Jan. 27, 2026. The company delivered good news, bad news, and great news for investors.
Image source: UPS.
The good news
Perhaps the most important good news from UPS' Q4 update was that it easily beat Wall Street's expectations. The package delivery giant generated revenue of $24.5 billion in the fourth quarter, higher than the average estimate of $24 billion. UPS posted Q4 adjusted earnings per share (EPS) of $2.38, well above the consensus estimate of $2.20.
In her remarks during the Q4 earnings call, UPS CEO Carol Tomé said that the "results exceeded our expectations, driven by strong revenue quality, solid cost management, and overall great execution." She noted that the company's international small package business recorded its highest Q4 revenue in four years.
Tomé's reference to revenue quality reflects more good news. Although UPS' U.S. daily volume declined by 10.8% year over year, its revenue per piece jumped 8.3%. The company's focus on revenue quality over quantity appears to be working.
UPS continues to make progress in two key market segments. Its small- and medium-sized business (SMB) penetration in Q4 was the highest in the company's history. Business-to-business (B2B) penetration was the highest fourth-quarter level in six years. CFO Brian Dykes cited healthcare logistics as a "robust growth area" for UPS.
NYSE: UPS
Key Data Points
The bad news
Investors didn't celebrate UPS' solid results, though. With shares falling moderately after the Q4 update, they appeared to focus more on the company's bad news.
UPS is likely headed for a weak first half of 2026. Dykes said in the earnings call that management expects profits to decline around 30% year over year in the first quarter of 2026. Tomé referred to a "bathtub effect" this year, with the first half down and the second half up.
Why the disparity between the first six months of 2026 and the last six months? Four factors stand out.
UPS' Amazon (AMZN 0.60%) volume glide-down and the timing of related higher costs will hit harder in the first half of the year. So will the transition costs associated with shifting Ground Saver back to the U.S. Postal Service. Additionally, UPS will incur higher costs in the first part of the year related to the retirement of its MD-11 aircraft fleet. The impact of tariffs is also an issue.
The great news
Now for the great news for UPS. 2026 is expected to be an inflection point for the company. The future of UPS won't be focused on shrinking its business but instead on growing in higher-margin areas.
The Amazon glide-down will be completed this year. Although UPS' overall shipment volume will decline, its cost structure will also be lower. The network reconfiguration resulting from the Amazon strategy should make UPS leaner and more agile as it targets more profitable shipments.
For income investors who love UPS' juicy 6.2% dividend yield, perhaps the greatest news of all is that the dividend should be on a firmer footing in 2026 than in 2025. The company paid more in dividends than it generated in free cash flow last year. However, UPS projects free cash flow of $6.5 billion in 2026 and plans to pay dividends of around $5.4 billion (subject to board approval).
Granted, the 2026 free cash flow estimate doesn't account for the financial impact of UPS' voluntary driver separation program. But that's only a one-time issue for the company. Even better, the driver separation program positions UPS to generate higher free cash flow going forward.
I know that some have argued in the past that UPS could (and even should) cut its dividend. This scenario seems unlikely anytime soon, based on the company's Q4 update. Again, that's really great news for income investors.
