UPS vs. FDX: Which Parcel Delivery Company Holds More Promise Now?

Core Insights - United Parcel Service (UPS) and FedEx (FDX) are dominant players in the air freight and cargo industry, with market capitalizations of $81.4 billion and $63.1 billion respectively [1][2] UPS Overview - UPS has been facing prolonged revenue weakness due to geopolitical uncertainty and high inflation affecting consumer sentiment [3] - U.S. average daily volumes have declined year-over-year in the first nine months of 2025, primarily due to a planned reduction of Amazon shipments and a strategic decrease in lower-margin e-commerce volumes [4][5] - In Q3 2025, UPS' International segment operating profit fell 12.8% to $691 million, with margins contracting from 18% to 14.8% [6] - The expiration of the De Minimis exemption on August 29 has negatively impacted international trade volumes, particularly in the China-U.S. trade lane, which saw a 27.1% decline [6][7] - UPS announced a 0.6% increase in its quarterly dividend to $1.64 per share, raising concerns about the sustainability of this dividend given its high payout ratio of 87% [8][10] - Free cash flow has been declining, with only $2.7 billion generated in the first nine months of 2025, while over $4 billion was paid in dividends [10] FedEx Overview - FedEx is also experiencing demand weakness but is implementing cost-cutting measures under the DRIVE initiative, which is expected to yield annual savings of $2.2 billion for fiscal 2025 [12][13] - FedEx raised its quarterly dividend by 5.1% to $1.45 per share and repurchased $3 billion in shares in fiscal 2025, returning a total of $4.3 billion to shareholders [14] - For fiscal 2026, FedEx anticipates revenue growth of 4-6% year-over-year, with adjusted earnings per share expected between $17.20 and $19 [15] - FedEx exited Q1 fiscal 2026 with cash and cash equivalents of $5.1 billion against a debt of $16.5 billion, resulting in a favorable debt-to-capital ratio of 43.2% [17] - FedEx issued bullish guidance for Q2 fiscal 2026, projecting adjusted EPS to exceed the previous year's value of $4.05 [18] Price Performance and Valuation - Over the past year, UPS shares have declined over 29%, while FedEx shares have performed better, declining in single digits [19] - UPS is trading at a forward sales multiple of 0.91X, while FedEx's forward sales multiple is at 0.67X, indicating that UPS shares are more expensive [23] - FedEx is expected to grow earnings at a rate of 10.1% over the next five years, compared to UPS's projected growth rate of 6.6% [25] - FedEx's lower financial leverage and favorable debt-to-capital ratio suggest a stronger financial position compared to UPS [26]