1 Number Every Ups Investor Should Watch In Q3 Earnings

NYSE · As of 10:28 AM ET 10/21/26

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Key data points

Market capMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.$83.82B

Day’s range$98.47 – $99.17

52wk range$86.30 – $122.41

Volume798.7K

Avg volume4.8M

Gross margin18.30%

Dividend yield6.66%

Why the guidance change isn’t good news

Superficially, it’s an increase in revenue guidance and also an increase over the implied guidance of $8.611 billion I calculated above. However, there are two key considerations for investors, and they matter a lot for the upcoming results of a company with a near-7% dividend yield.

First, the new guidance implies an adjusted operating margin of 9.48%, down from the 9.6% initially forecast. Second, it’s important to understand the nuance of the guidance change. As previously discussed, due to rising fuel costs, UPS raised fuel surcharges by $1.173 billion in the first half. Bearing in mind that the increase in full-year revenue guidance was $1.5 billion to $91.2 billion, it’s reasonable to expect a large chunk of the revenue increase is due to the fuel surcharge.

Turning to the difficult question of how much profit UPS is making from the fuel surcharges, its fuel cost and third-party costs increased by $744 million, resulting in a net difference of $429 million — a figure slightly more than the increase in adjusted operating profit guidance.

Image source: Getty Images.

To be clear, management’s position is that the fuel surcharge is intended solely to cover increased fuel costs, and there are associated costs related to fuel disruptions as well. Moreover, CFO Brian Dykes argued that “the net impact to consolidated operating profit dollars was modest” on the second-quarter earnings call.

In the absence of knowing exactly what kind of figure “modest” implies, it could be argued that the combination of a positive contribution from fuel surcharges over fuel cost — something not ly to prove sustainable — actually implies a significant decrease in adjusted operating profit margin if the impact of fuel is taken out.

The key metric to look out for

As noted, this is the year when UPS should start to build on margin improvement, not least because it finished the so-called “glide down” of Amazon deliveries by 50% (volume) from the start of 2025 to the middle of 2026. That’s why investors are so focused on margin, particularly the expected adjusted operating profit margin in the U.S. domestic package segment.

I’ve replicated what the Wall Street consensus, according to S&P Global Market Intelligence, is expecting for the segment, and the company’s total adjusted operating margins will be below. As is often the case with Wall Street estimates, the full-year U.S. Domestic Package margin guidance mirrors management’s 7.5% guidance given on the last earnings call.

Data source: S&P Global Market Intelligence.

Watch UPS’s margin guidance

All told, in the absence of management disclosing the exact figure, it’s hard to know exactly how much fuel surcharges are adding to the blue chip stock’s profitability. However, management has guided to a full-year U.S. Domestic Package adjusted operating profit margin of 7.5%, and the implied total company adjusted operating margin guidance is 9.48%.

Any failure to maintain those figures or meet the Wall Street analyst consensus in the table in the third quarter would suggest its margin trajectory isn’t quite what most hope for. That said, if UPS beats both expectations, the margin expansion story will support the case for the stock.

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About the Author

Lee Samaha is a contributing Stock Market Analyst at The Motley Fool covering industrials, electricals, energy, materials, transportation, and infrastructure stocks. Prior to The Motley Fool, Lee was a Civil Engineer and Investment Manager. He holds a Bachelor of Civil and Structural Engineering from Southampton University and a Certificate in Investment Management from Chartered Institute for Securities & Investment. Lee first cut his investing teeth on The Motley Fool bulletin boards (commonly referred to as the “Fool Boards,”) and he’s infinitely grateful to all of the investors he learned from in this powerful investing community.

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