Core Insights - UPS is strategically repositioning itself for long-term growth by reducing its partnership with Amazon, which has been in place for nearly 30 years [1][4] - The company reported Q3 revenue of $21.4 billion and adjusted EPS of $1.74, exceeding Wall Street expectations, and projects Q4 revenue of approximately $24 billion [1] Business Refocus - UPS is transforming its U.S. operations to concentrate on high-margin market segments such as small and midsized businesses, health care logistics, and B2B delivery, moving away from low-return, capital-intensive volume [3] - The decision to halve Amazon delivery volume by late 2026 reflects a strategic shift, as UPS aims to focus on areas where it can add the most value [4] Operational Adjustments - UPS has cut about 34,000 operational positions in 2025, primarily through attrition and targeted buyouts, and closed operations at 93 facilities while eliminating 14,000 management jobs [6] - The company expects a 20% volume increase from Q3 to Q4, translating to roughly 4 million additional packages per day, indicating readiness for the holiday season despite reduced Amazon volume [7] Health Care Growth - UPS's health care segment has grown significantly, from zero to a $10 billion business since 2016, driven by targeted acquisitions and a focus on cold chain logistics, quality assurance, and regulatory oversight [8][9] - The health care customers are noted for their longevity and faster growth, contributing to higher margins, which is seen as a sustainable growth strategy [9]

Core Viewpoint - United Parcel Service (UPS) has seen its stock price decline over 30% year-to-date, but it remains an attractive option due to its high dividend yield and potential for profitability improvements through strategic changes and market expansions [1]. Group 1: Dividend - UPS offers a forward dividend yield of 7.57%, which is considered substantial and appealing to income investors [2]. - CEO Carol Tomé has expressed confidence in the sustainability of the dividend, citing strong free cash flow and a solid investment-grade balance sheet as backing [2]. - Management is committed to maintaining a stable and growing dividend, recognizing its importance to investors [2]. Group 2: Tariff Impact - UPS is currently facing challenges due to tariffs, with CEO Tomé stating that tariffs generally negatively impact trade [3]. - The average daily volume for UPS's most profitable trade lane between China and the U.S. decreased by 34.8% year-over-year in May and June, while volume from China to other global markets increased by 22.4% in Q2 [3]. - UPS has expanded its capacity in the India-to-Europe trade lane to accommodate rising demand [3]. Group 3: Amazon Business Adjustment - UPS has reduced its business with Amazon by 50%, which may lead to a more profitable business model in the long run [4]. - The company has initiated a voluntary separation program for full-time U.S. drivers, which is expected to result in significant cost reductions as higher-paid drivers leave [5]. - Despite the reduction, Amazon will remain a key customer, with the retained volumes generating higher profits than those being eliminated [6]. Group 4: Expansion into Higher-Profit Opportunities - UPS is focusing on expanding into healthcare logistics, which has a total addressable market of $82 billion, aiming to become the leading provider in this sector [7]. - The company already leads in radiopharmaceutical logistics and offers unique capabilities such as RFID tagging [8]. - UPS plans to acquire Andlauer Healthcare Group to enhance its cold chain and pharmaceutical transportation capabilities in the U.S. and Canada, while also serving small-to-medium-sized businesses (SMBs) that accounted for 32% of total U.S. volume in Q2 2025 [9]. Group 5: Investment Appeal - While growth investors may not find UPS attractive, income investors are likely to appreciate the high dividend yield [10]. - The stock is also appealing to value investors, trading at only 13.2 times forward earnings [10].