Where Will UPS Be in 3 Years?

UPS's Future Prospects Over the Next Three Years

United Parcel Service (UPS) announced a significant change in its business strategy in April 2025, with the acquisition of the Andlauer Healthcare Group for $1.6 billion. This move is part of UPS's ongoing efforts to expand its presence in the healthcare industry and small business deliveries.

UPS has been actively acquiring healthcare businesses, including Frigo-Trans, Biotech & Pharma Logistics, and now Andlauer Healthcare Group. These acquisitions are aimed at achieving UPS's objectives and positioning the company for growth in the coming years.

Wall Street expects UPS's sales to reach $87.8 billion in 2026, a promising sign for the company's future. However, the extent of UPS's improvement is a topic of debate, with some analysts expressing concerns about the company's need to pay a sizable dividend.

To optimize its network, UPS is reducing low- or negative-margin deliveries for Amazon, a strategic decision that aligns with its goal of shifting to higher-margin deliveries. This shift is expected to lead to margin expansion, although it may also result in a reduction of revenue.

The penetration rate of SMB deliveries has increased from 27% in 2021 to 31.2% as of the first quarter of 2025. Management aims to grow SMB deliveries to 40% of its total package volume in the U.S., a significant increase from its current levels.

UPS's Digital Access Program (DAP) provides small and medium-sized businesses with access to enterprise-level shipping rates and services, further demonstrating the company's commitment to the SMB sector.

In addition to its focus on SMB deliveries, UPS is also investing heavily in the healthcare industry. The company aims to double its healthcare revenue from $10 billion in 2023 to $20 billion by 2026. UPS healthcare revenue could grow to 22.7% of total revenue in 2026, representing a significant shift in the company's business mix.

UPS is making ongoing investments in technology to build out its Network of the Future, which includes plans to invest in automation, robots, and smart facilities. The company plans to close 200 facilities by the end of 2028, resulting in $3 billion in annual cost savings.

However, the improvement in UPS's business is being obscured by near-term headwinds, strategic operational decisions, and the need to pay out $5.5 billion in dividends. Some analysts have suggested that management should consider cutting the dividend due to the current financial position.

Despite these challenges, UPS is confident in its strategy and aims to reduce Amazon deliveries by 50% from the start of 2025 to June 2026, which could result in about $5.4 billion in run-rate revenue from Amazon in 2026.

In conclusion, UPS is undergoing a significant transformation, shifting its focus towards healthcare and small business deliveries. This shift, along with the reduction in costly deliveries, is expected to lead to margin expansion, although it may also result in a reduction of revenue. The company's ongoing investments in technology and its Network of the Future are key components of its strategy for growth and improvement in the coming years.