UPS is laying off its biggest customer — and Wall Street finally understands why

Investors were not happy UPS (NYSE: UPS) in early 2025, when the company announced plans to reduce deliveries for Amazon by more than 50% by the end of 2026. The move would lead to a drop in full-year revenue and force a broad restructuring of the company’s delivery network to account for reduced package volume.

With the plan now well in place, the stock market is finally getting on board. Shares of UPS rose on Tuesday morning after the company beat expectations for the fourth quarter and announced significant job cuts related to Amazon’s liquidation. While UPS’s revenue fell in the fourth quarter, the benefits of ditching Amazon are becoming apparent.

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In 2024, Amazon accounted for 11% of UPS’s revenue, but between 20% and 25% of its US network volume. Amazon was the company’s biggest customer, but not its most profitable. Amazon’s low-margin packages have helped fill UPS planes and trucks, but hurt the company’s profit margins.

In 2025, UPS reduced Amazon’s volume by 1 million pieces per day. The plan for 2026 is to churn out another 1 million pieces a day, bringing Amazon’s business down to a level that makes more economic sense for the company. UPS closed 93 buildings in the US last year as part of that plan, consolidating its network into fewer facilities. These building closures, along with other initiatives, have resulted in $3.5 billion in savings.

UPS has cut 48,000 jobs in 2025, including a reduction of 15,000 seasonal jobs, resulting in 26.9 million fewer work hours than in 2024. Another 30,000 jobs are planned for 2026, along with 24 additional building closings. These moves are expected to reduce work hours by an additional 25 million.

While average US daily volume fell 10.8% in the fourth quarter due to Amazon’s plan, revenue per piece rose 8.3%. Adjusted operating profit fell slightly, but adjusted operating margin improved. UPS reported an adjusted operating margin for the US segment of 10.2% in the fourth quarter of 2025, up from 10.1% in the prior-year period. This improvement came despite unusual costs associated with grounding part of its aircraft fleet.

The road ahead will be bumpy for UPS, with declining revenue from Amazon’s plan and costs associated with closing facilities and completing network reconfiguration weighing on the bottom line. For 2026, the company expects a global adjusted operating margin of 9.6%, down slightly from 9.8% in 2025.

That outlook is considerably lower than what UPS expects in mid-2024. During a conference call with investors and analysts, the company estimated an adjusted operating margin of at least 13% and revenue substantially higher than the current outlook. That was before the company launched its plan to divest most of Amazon’s business, and now it will take longer to hit those targets.

In the long term, generating higher revenue per piece and reducing costs in its network can lead to expanded operating margin. UPS calls 2026 an inflection point, with US business expected to improve significantly in the second half of the year as Amazon’s plan is finalized. With much of the low-margin revenue out of the picture, the worst will be over.

UPS’s intended downgrade was painful for investors as the stock fell from a multi-year high. But the light at the end of the tunnel is now visible, and UPS is positioned for healthy growth and margin expansion in 2027 and beyond.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool has a disclosure policy.

UPS lays off its biggest customer — and Wall Street finally understands why Originally published by The Motley Fool