UPS Walks Away from Amazon: A Smart Bet on Margins
💡 Key Takeaway
UPS's strategic reduction of Amazon business, despite short-term revenue loss, positions it for higher-margin growth and makes it an attractive income stock.
What Happened: UPS Reduces Amazon Dependence
UPS, one of the world's largest shipping couriers, has significantly reduced its reliance on Amazon over the past two years. In early 2025, UPS announced it would cut Amazon-related shipping volume by more than 50% through 2026. By mid-2026, UPS had phased out standard last-mile delivery services for Amazon in major markets, reducing shipment volume by millions of pieces per day.
Amazon had been UPS's largest customer, so this move might seem counterintuitive. However, those last-mile shipments were clogging UPS's sorting facilities and generating lower profits compared to its longer-range deliveries. UPS decided to sacrifice near-term revenue to stabilize long-term margins.
In 2024 and 2025, UPS generated about 11% of its revenue from Amazon. That percentage dipped below 9% in the first half of 2026 and is expected to shrink further in the second half. The reduction won't drop to zero, as UPS will still handle Amazon returns at UPS Stores, manage marketplace seller logistics, and deliver long-distance freight. It will also fulfill Amazon's last-mile orders in certain rural areas and during peak seasons.
This move is reminiscent of FedEx's decision to completely cut ties with Amazon in 2019, but UPS is taking a more gradual approach, maintaining some relationship while reducing dependency.
UPS is now focusing on securing higher-margin orders from small- to medium-sized businesses and healthcare customers. It's also trimming its workforce, closing some facilities, and automating tasks to streamline operations.
Why It Matters: A Strategic Shift for Long-Term Growth
For 2026, UPS expects revenue to rise 3% to $91.2 billion, with adjusted EPS growing 1% to $7.22. While these growth rates seem modest, they mark the first time since 2022 that revenue and adjusted EPS have grown together. This is a critical milestone, proving that UPS can grow without Amazon's low-margin orders.
This achievement counters the bearish narrative that macro headwinds, competition, and labor issues would limit UPS's growth. By shedding unprofitable volume, UPS is improving its operational efficiency and focusing on higher-value services.
For investors, this strategic pivot could lead to better margin expansion and more sustainable earnings growth over the long term. The stock's valuation at 14 times forward earnings and a 6.4% dividend yield make it an attractive income play, especially in a volatile market.
However, there are risks. The loss of Amazon's volume could pressure revenue in the short term, and UPS must successfully execute its cost-cutting and customer diversification strategies. If it fails to replace Amazon's business with higher-margin customers, the stock could suffer.
Overall, this move signals that UPS is prioritizing profitability over revenue growth, which is a positive sign for long-term investors.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
UPS's decision to reduce Amazon dependence is a smart long-term move that should enhance margins and make the stock a solid income investment.
By shedding low-margin business, UPS is improving its profitability and proving it can grow without Amazon. The stock is undervalued at 14x earnings with a high dividend yield, offering a good risk-reward for income investors. However, execution risks remain, so investors should monitor progress.
What This Means for Me
