Unpacking UPS's Q3 2025 10-Q: Pricing Power vs. Transformation Costs

Global logistics giant UPS is navigating a complex economic landscape, and its latest quarterly report filed with the SEC for the third quarter of 2025 gives us a clear look at the challenges and strategies at play. In this post, we'll unpack the key numbers from the income statement to understand the company's performance.

For the three months ended September 30, 2025, UPS reported total revenue of $21.4 billion, a decrease of 3.7% from the $22.2 billion generated in the same period last year. This dip in the top line led to a 14.8% drop in net income, which landed at $1.3 billion, or $1.55 per diluted share.

Pricing Power Cushions Volume Decline

A closer look at the U.S. Domestic Package segment, the company's largest, reveals a critical dynamic. Average daily package volume saw a significant decline of 12.3% compared to the third quarter of 2024. This reflects softer demand across the board, from Next Day Air (-10.9%) to Ground services (-12.0%).

However, UPS managed to partially offset this volume drop through assertive pricing. The average revenue per piece in the domestic segment jumped 9.8% to $13.47. This demonstrates the company's ability to implement rate increases and maintain pricing discipline in a tough market, a crucial lever for protecting revenue when fewer packages are moving through its network.

The following flow diagram provides a visual breakdown of how UPS's quarterly revenue from its different segments flows through various costs and expenses to arrive at its net income.

The High Cost of Transformation

While revenue pressures tell part of the story, the expense side reveals a company in the midst of a major overhaul. Operating profit fell 9.1% to $1.8 billion, and a key factor was the significant increase in what UPS calls "Transformation Strategy Costs."

These expenses, related to initiatives aimed at improving long-term efficiency, more than doubled to $328 million for the quarter, up from $154 million last year. The bulk of this quarter's spending ($296 million) was for a program called "Network Reconfiguration and Efficiency Reimagined." These strategic investments, while designed to create a more efficient company in the future, are currently weighing on short-term profitability. The company noted these costs had an after-tax impact of $250 million, or $0.29 per diluted share.

Segment Snapshot

• U.S. Domestic Package: Revenue dipped 2.6% to $14.2 billion, with operating profit falling 28.5% to $603 million as lower volumes and higher transformation costs took a toll.
• International Package: This segment was a bright spot for volume, with average daily packages up 4.8%. However, revenue growth was a more modest 5.9% to $4.7 billion, and operating profit still declined 15.3% to $676 million, impacted by cost pressures.
• Supply Chain Solutions: This segment, which includes forwarding and logistics, saw revenue fall 22.1% to $2.5 billion, largely due to a 44% drop in its Forwarding business. Despite the revenue decline, the segment's operating profit grew an impressive 52.6% to $525 million, suggesting improved profitability on the business it retained.

The Takeaway

UPS's third-quarter performance paints a picture of a company navigating a cyclical downturn in shipping demand while simultaneously investing heavily in its future. The ability to raise prices is helping to buffer the impact of lower volumes, but significant spending on strategic initiatives is pressuring the bottom line. For investors and market watchers, the key will be to monitor when these transformation efforts begin to pay off in the form of sustained efficiency gains and improved operating margins.