The operator introduces the conference and the speakers. PJ Guido, the Investor Relations Officer, welcomes everyone and reminds them of the forward-looking statements and risks involved. The discussion will refer to adjusted results and GAAP results include an after-tax charge. A reconciliation to GAAP results is available on the website. Questions will be taken after the prepared remarks.

Carol Tome, CEO of UPS, thanks UPS employees for their hard work during the recent labor negotiations and for providing excellent service to customers. The global macroenvironment and labor uncertainty negatively impacted volume in the third quarter, with August being the most challenging month. However, since the ratification of the labor contract, volume has been gaining momentum. UPS has won back 600,000 daily volume and is working to win back all diverted volume by the end of the year. Despite a 12.8% decrease in consolidated revenue compared to last year, the third quarter performance was in line with expectations, taking into account the timing of contract ratification and higher labor costs.

In the third quarter, the company's operating profit decreased by 48.7% compared to last year. The company is focused on restoring volume in their network and delivering value to shareholders. They have a customer-first, people-led, and innovation-driven strategy that includes recent acquisitions in healthcare logistics and end-to-end returns solutions. Their goal is to become the number one complex healthcare logistics provider in the world and they have made bold moves to achieve this, including the recent acquisition of MNX Global Logistics. The company has also opened seven dedicated healthcare facilities and has more than doubled their healthcare distribution space since 2020. Their efforts are on track to reach their $10 billion healthcare revenue target this year.

The company has seen significant growth in their returns business, especially with the rise of e-commerce. To improve the returns experience, they have acquired Happy Returns, a technology-focused company that allows for easy and convenient returns without a box or label. This will be available at over 12,000 locations in the US and will also benefit enterprise retail customers by lowering costs and improving the experience. The company is also focused on improving the delivery experience, with the expansion of UPS delivery photo, which has led to a reduction in support requests. They are also using data to offer targeted products, such as their new hyperlocal option for next-day delivery within a metro area.

UPS has recently launched Hyperlocal, a new service offering that allows them to capture new profitable B2C and B2B volume. They have also seen success with their digital access program, generating $2.1 billion in revenue and expecting to reach $3 billion by the end of the year. The company is also focused on innovation, implementing transformative technology such as Smart Package, Smart Facility and robotics to increase efficiency and improve the employee experience. They are currently preparing for peak season, and have consistently outperformed their closest competitor in terms of service during peak.

The company is preparing for peak season by collaborating with customers, utilizing technology, and hiring seasonal employees. They have made changes to their financial outlook based on current market trends. The CEO also mentions their progress in achieving their goals for the year. The CFO will provide more details in the following section.

The macroenvironment in the third quarter was challenging, with weakness in Asia and Europe and no significant changes in global consumer conditions. In the US, volume diversions and higher labor costs due to new contracts and peak season preparations affected financial results. Consolidated revenue and operating profit were down compared to last year, and operating margin was 7.7%. In the US Domestic segment, there was a decrease in average daily volume due to labor negotiations.

In the third quarter, average daily volume for the company was down compared to last year, with the largest declines in retail and high-tech sectors. B2B volume increased slightly and customers shifted from air to ground shipping. SMBs made up a larger portion of total volume. Despite lower volume, the company maintained strong revenue per piece through base rates and improved customer and product mix. Total expenses decreased due to lower compensation and benefits.

In the third quarter, total union wage rates increased by 11.5%, while total hours were reduced by 11.4% through the use of service plans and network planning tools. Purchase transportation expenses were also reduced by 190 basis points, and fuel costs decreased by 170 basis points. The US Domestic segment saw a 60.6% decrease in operating profit, while the International segment faced challenges in some regions due to falling demand and high inflation. Overall, international average daily volume was down 6.6%, with the most significant decline coming from lower domestic average daily volume in Europe. However, there was some growth in export volume in the Americas region, particularly in Canada and Mexico.

In the third quarter, International revenue decreased by 11.1% due to a decline in volume and revenue per piece. This was caused by lower fuel surcharge revenue and a reduction in demand-related surcharge revenue. However, strong base rates and a weaker US dollar partially offset this decline. Total international costs were down, mainly due to lower fuel expense. Despite the decrease in revenue, the company was able to maintain excellent service to customers by adjusting their network and cutting costs. Operating profit in the International segment also decreased, but the company still maintained a 15.8% operating margin. In the Supply Chain Solutions segment, revenue decreased by $854 million, driven by softer global demand in international air freight and excess market capacity in ocean freight. In response to these challenges, the company cut operating costs. The truckload brokerage unit also faced pressure from excess capacity in the market, resulting in a decrease in revenue and operating profit.

In the third quarter, Logistics saw growth in revenue and operating profit, with Supply Chain Solutions generating an operating margin of 8.8%. The company also had interest expenses, pension income, and a low effective tax rate. Cash flow and shareowner returns were also strong, with $7.8 billion in cash from operations and $4.9 billion in free cash flow. However, the company expects a challenging year due to inflation, interest rates, global conflicts, and labor negotiations, and has lowered its full-year guidance. The company is focusing on controlling what it can and adjusting its network to match volume levels and maintain high service standards. The global demand environment has also slowed, leading to a range of uncertainty in the market. The company expects consolidated revenue to be between $91.3 billion and $92.3 billion, and consolidated operating margin to be between 10.8% and 11.3%.

The paragraph discusses the current state of consumer spending and its impact on the company's performance. It mentions potential challenges in the fourth quarter, including lower holiday retail sales and a decline in exports to major European markets. The company's capital allocation plans for the year are also outlined, including expected expenditures, dividends, debt repayment, and share buybacks. The company remains focused on providing excellent service during peak times and is prepared for challenges in the current macroenvironment. The paragraph concludes with a request for questions from analysts.

Chris Wetherbee asks about the significant improvement in operating profit for the fourth quarter, which is driven by volume and revenue quality. Brian Newman explains that the productivity of the teams and the increase in volume and revenue quality are the main drivers of this improvement. He also mentions that the momentum has been increasing since August, with October seeing a higher volume of 19 million pieces compared to the low of 16 million in August.

The company has seen an increase in volume and momentum in the August to October timeframe, leading to the guidance for the year. They have successfully recaptured over 600,000 pieces of lost volume, with 50% coming from their largest competitor. The recapture continues day by day, but they are also focused on winning new business, with 25% of a $7 billion pipeline already won. There are no significant costs associated with the recapture, as customers are returning due to the company's superior service.

David Vernon asks Brian Newman about the $800 million step-up mentioned in the low end of the guidance range. He also asks about the expected shape of 2024 and how it will recover in terms of domestic margins. Brian Newman explains that the first half of the year will be more challenging due to higher costs and inflation, but the second half will improve with higher volume and a lower inflation rate. More details will be provided at the next Investor Day in March.

The speakers, Brian Newman, Carol Tome, and David Vernon, discuss the company's performance and future plans. They mention building momentum and giving more information about the year 2024. They also express confidence in the revenue range, with the upper end being driven by the retail backdrop. Carol Tome adds that they have insight into their peak customers' plans, giving them confidence in their US volume numbers. In response to a question, they clarify that they are recapturing volume and emphasize its importance.

In the recent earnings call, an analyst asked about the progress of recapturing lost business. Brian Newman, the company's CEO, responded by saying that 40% of the 1.5 million diverted pieces have already come back to the system, and they are also pushing forward with new business. However, he also mentioned that the current retail outlook may impact their ability to reach their goal of flat volumes in December. Another analyst asked if the peak season and customers' focus on their own execution may limit the company's ability to win back volumes in the near term.

The speaker asks a question about the company's capture rates in September-October and wonders if they will slow down in November-December. The CEO responds that the rates are actually accelerating due to the company's superior service. The next question is about the company's step-up and its impact on margins. The CFO clarifies that the company has announced a 6-7% peak season surcharge and there are no significant costs associated with winning back volume. Another question is asked about the company's international margins and the CFO confirms that they are aiming to return to a 20% range, taking into account the shift from peak to belly space. The CEO also adds that there are no meaningful discounts given to customers to win back volume.

Brian Newman explains that the uncertainty in the retail backdrop drives the difference in volume and profit expectations for the low and high end of the range. He also discusses the expected margin for each segment in Q4, with a goal of returning to high-single-digit or low-double-digit margins in the US and maintaining a margin in the middle of the range for international. An analyst asks when domestic margins will start to expand again.

In the third quarter, the RPP, CPP spread was negatively wide, but it is expected to improve in the fourth quarter. The company had $500 million of expenses related to their Teamster contract, which impacted the US margin. However, once this front-end load is over, the margin is expected to grow significantly. The question was raised about the return profile for the first half of next year, but the company will provide guidance for 2024 and can break it down by quarter if necessary. The next question came from Ravi Shanker of Morgan Stanley, but was asked by Christyne McGarvey on his behalf.

During an investor call, Carol Tome, CEO of a company, discussed the path to achieving their long-term targets. She mentioned that they plan to grow ahead of the market due to investments in new products, capabilities, and acquisitions. She also highlighted the recent acquisition of Happy Returns, a company that offers consolidated returns for retailers, which will reduce handling costs and improve delivery density. This move is expected to benefit both the company and its customers.

Carol Tome, CEO of a company, is excited about two recent acquisitions in the healthcare industry. The company's healthcare business is projected to reach $10 billion this year, with a potential market of over $100 billion. Tome believes that the company's investments in capabilities such as cold chain will help them capture a larger market share. She also mentions a shift in consumer spending from goods to services, but reassures that the consumer is still healthy and retailers are adapting to this change.

The speaker gives an example of customers in the top 20 who are experiencing declining sales due to the anniversary of the COVID peak and a shift in demand. They also mention that some larger customers are seeing softer demand and that this can be seen in their reported sales and guidance. The speaker clarifies that they are not talking about anything non-public. The next question asks about revenue quality initiatives and the mix impact from these initiatives on small and medium enterprises. The speaker responds that SMBs are an attractive part of the business and they have continued to penetrate that market. However, they are seeing customers trade-down from air to ground shipping, which has a customer mix impact. The speaker also mentions that there has been a shift in volumes since 2019.

The company has been focused on improving the revenue quality and customer experience, which has resulted in an increase in SMB mix and net revenue per piece. They are continuing to simplify the experience for customers and have seen a high net promoter score. The pace of regaining lost market share may become more challenging, and the company plans to spend $1.3 billion on two planned acquisitions.

The speaker discusses the acceleration of network growth as the peak approaches. They mention receiving updates on volume and how it takes time for customers to come back into the network. They also mention wanting photos to confirm the volume is actually in the network, and how they are having fun picking up volume from competitors. The speaker then concludes by stating there is time for one more question before the call ends.

This summary was generated with AI and may contain some inaccuracies.