By Abhinav Parmar and Lisa Baertlein
July 28 (Reuters) - United Parcel Service lifted annual revenue and profit forecasts above Wall Street estimates on Tuesday as it returned to growth on domestic demand strength after a planned volume pullback in Amazon.com, but its shares dropped nearly 7% on some investor skepticism about the outlook.
The world's largest parcel delivery company, widely viewed as a barometer of global economic activity due to its exposure to a broad range of industries, has been
consolidating its footprint by closing facilities and cutting jobs as it seeks to streamline operations and generate $3 billion in cost savings by 2026.
"We successfully completed our Amazon glide down and related network reconfiguration initiatives as designed," CEO Carol Tome said after the company reported second-quarter results that topped company and Wall Street expectations.
The company had previously said it would accelerate a plan to slash millions of low-profit deliveries for the online retailer, its largest customer and a growing delivery rival, calling the business "extraordinarily dilutive" to margins.
In April, UPS said Amazon represented 8.8% of its business at the end of the first quarter, a sharp decline from a peak contribution of more than 13%.
Its shares were down 6.5% at $105.56 a share by 1338 GMT. Rival FedEx stock fell 1.6%.
US DOMESTIC MARGIN IN FOCUS
UPS expects to generate revenue of $91.2 billion in 2026, up from its previous forecast of $89.7 billion. It now expects full-year adjusted earnings of $7.22 per share.
It forecast roughly flat revenue for the current third quarter versus the year earlier period and operating margin of about 7%.
UPS' U.S. domestic adjusted operating margin was 8% in the second quarter, while its international segment reported a margin of 12.4%, highlighting significantly higher profitability in the company's overseas business.
"If margin upside continues at U.S. Domestic, investors may gain confidence that the cost realignment associated with the now-completed Amazon glide-down is tracking ahead of plan, which will be viewed positively," said Evercore ISI analyst Jonathan Chappell.
Atlanta-based UPS reported adjusted operating profit of $2.10 billion. It posted adjusted profit per share of $1.76 for the quarter ended June 30.
Analysts on average expected the company to report adjusted profit of $1.66 per share, according to data compiled by LSEG.
It reported second-quarter consolidated revenue of $22.83 billion, compared with analysts' estimate of $21.81 billion.
UPS benefited from fuel surcharges that insulated margins from higher energy costs, while stronger package volumes helped drive higher yields and support quarterly performance.
The company has previously warned that sustained fuel-price inflation could weaken consumer spending in the U.S., reducing demand for shipments across its network.
(Reporting by Lisa Baertlein in Los Angeles and Abhinav Parmar in Bengaluru; Editing by Pooja Desai and Emelia Sithole-Matarise)
