UPS outlook revised to negative by S&P on weakened financials
Investing.com -- S&P Global Ratings revised its outlook on United Parcel Service Inc. to negative from stable, while affirming the company’s credit rating.
The rating agency cited UPS’s funds from operations (FFO) to debt ratio falling below the mid-30% threshold, with figures of 33.7% in the second quarter of 2025 and 33.1% in the third quarter.
S&P expects UPS’s FFO to debt ratio to be about 31% for fiscal 2025, reflecting weakening FFO and lower cash balances of around $5 billion compared to third-quarter 2025 balances of $6.7 billion.
The rating agency forecasts the company’s FFO to debt ratio to remain weak at about 32%-34% in 2026, with modest improvement to an estimated 35%-36% in 2027.
S&P projects UPS’s 2025 revenue to decline around 3%-4%, primarily due to the sale of Coyote in 2024, lower Amazon volumes, yield initiatives on its Ground Saver product, and weaker macroeconomic activity from trade policy uncertainty.
The company’s adjusted EBITDA margins are expected to decline 70 basis points to 14.4% in 2025, representing approximately $700 million lower EBITDA than previously forecast.
S&P noted that UPS’s adjusted debt is about $2.7 billion higher than previously forecast, with $2.1 billion attributed to 2025 acquisitions of Frigo-Trans ($479 million) and Andlauer Healthcare Group Inc. ($1.6 billion).
For 2026, S&P expects UPS’s revenue to grow around 1%, with flat revenue in its U.S. Domestic Package segment, 2%-3% growth in the International Package segment, and 4%-5% growth in its Supply Chain Solutions segment.
The rating agency highlighted that UPS faces challenges including a $175 million voluntary driver separation plan and $100 million of inefficiencies tied to the insourcing of its Ground Saver product.
Regarding the November 4, 2025, accident at the Louisville Muhammad Ali International Airport, S&P indicated it is unable to estimate the cash-flow impact at this time. While operations largely resumed by November 5, the Federal Aviation Administration grounded the MD-11 model on November 8, affecting about 10% of UPS’s total fleet.
S&P could downgrade UPS if it believes the company’s FFO to debt won’t recover to the mid-30% area over the next 18-24 months, which could occur if network configuration doesn’t yield expected earnings improvement or if management pursues aggressive financial policies such as share repurchases or debt-funded acquisitions.
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