The operator introduces the conference call and explains the format. The host, PJ Guido, introduces the CEO and CFO and reminds listeners of the risks and uncertainties associated with forward-looking statements. The discussion will focus on adjusted results for the fourth quarter of 2023, which includes various charges. The presentation will be posted on the UPS Investor Relations website after the call.

Carol Tome, CEO of UPS, thanks the UPS team for their hard work and commitment to customer service, resulting in UPS being the industry leader in on-time performance. Despite a 7.5% decline in total average daily volume in the fourth quarter, UPS saw a marked improvement from the third quarter due to their program, Project Brown, which aims to win back and pull through diverted and new volumes. Consolidated revenue for the fourth quarter was $24.9 billion, slightly below expectations, and operating profit was $2.8 billion, a 27.1% decrease from last year but within expectations. For the year, consolidated revenue was $91 billion, a 9.3% decrease, and operating profit was $9.9 billion, 28.7% lower than last year.

In 2023, the company had a consolidated operating margin of 10.9% and generated $5.3 billion in free cash flow. They also returned $7.6 billion to shareholders through dividends and share repurchases. Despite a difficult year with declines in volume, revenue, and operating profit, the company remained focused on their strategy of customer first, people led, and innovation driven. They achieved their goal of $10 billion in revenue in their healthcare portfolio and expanded their global network of healthcare-compliant distribution space. They also made acquisitions to strengthen their cold-chain capabilities and announced plans for a new air hub in Hong Kong to support growth in their international small package business. They also saw growth in their SMB penetration.

In 2023, SMBs accounted for 28.6% of total US volume for UPS, with a significant increase attributed to the success of the Digital Access Program (DAP). The company also reached a labor agreement and implemented a policy of everyone returning to the office five days a week. UPS's culture emphasizes personal relationships and innovation, with the use of technology and network planning tools enabling them to efficiently handle a large volume of packages. The acquisition of Happy Returns also contributed to increased returns volume, and UPS continues to invest in technology for their warehousing facilities, such as the state-of-the-art UPS Velocity center in Louisville, Kentucky.

The company has named their new facility Velocity and it is focused on streamlining fulfillment operations through the use of advanced technology. They have a customer-first, innovation-driven strategy and are making bold moves to right-size the company and focus on key growth factors. This includes exploring strategic alternatives for their truckload brokerage business and a workforce reduction of 12,000 positions. The company's 2024 outlook predicts slow market growth but they expect to generate revenue of $92 billion to $94.5 billion and an operating margin of 10% to 10.6%.

In the fourth quarter, UPS expects a contrast between the first and second half of the year due to a new labor contract. First-half earnings will be compressed while second-half earnings will expand. The company remains strong and has increased its quarterly dividend. The macroenvironment showed improvements but the transportation and logistics sector still faced challenges. UPS leveraged its integrated network to match capacity with demand and was recognized for providing industry-leading service. In the fourth quarter, consolidated revenue was $24.9 billion, down 7.8% from the same period in 2022.

In the fourth quarter, all three business segments of the company showed agility and reduced expenses, resulting in a operating profit within the expected range. The US Domestic segment saw a record surge in volume due to efforts to win back diverted volume and attract new volume. B2B average daily volume was down 6.8%, with retail, manufacturing, and high-tech sectors showing declines. Customers also shifted volumes from air to ground due to macro pressures. US Domestic revenue was down 7.3%, with revenue per piece slightly positive due to strong base rates and customer mix offset by changes in product mix and package characteristics.

In the fourth quarter, peak season surcharge revenue and changes in fuel prices had a negative impact on revenue per piece growth rate. Despite a 12.1% increase in union wage rates, the company was able to reduce total expenses by leveraging network planning tools and reducing total hours. This resulted in a $578 million cost reduction, the largest ever in the fourth quarter. During peak season, the company closed over 30 sorts and leveraged its integrated network to handle increased volume, resulting in improved service for customers.

In the fourth quarter of 2023, the US Domestic segment of the company had a decrease in operating profit compared to the same quarter in 2022. However, there was a significant increase in operating profit compared to the third quarter of 2023. The International segment also saw a decline in volume due to weak demand in Asia and Europe, but there was an increase in export volume from the China to US lane. Overall, International revenue decreased due to the decline in volume, but revenue per piece increased thanks to strong base pricing and a change in customer mix.

The reduction in fuel surcharge revenue and lower demand-related surcharge revenue had a negative impact on the revenue per piece growth rate in the International segment. Total international expense decreased due to lower fuel expense and capacity management in response to lower demand. Operating profit in the International segment was down compared to the previous year. In the Supply Chain Solutions segment, revenue decreased due to lower volumes and market rate pressure. Operating profit in this segment was also down. The company's full-year 2023 results showed a decline in revenue and operating profit compared to the previous year, with a consolidated operating margin of 10.9%.

In 2023, the company generated $10.2 billion in cash from operations and followed their capital allocation priorities. They invested $5.2 billion in CapEx, acquired MNX Global Logistics and Happy Returns, distributed $5.4 billion in dividends, repaid $2.4 billion in debt, completed $2.25 billion in share buybacks, and had a debt-to-EBITDA ratio of 2.2 turns. In 2024, they are expecting an improvement in global macro conditions and have built a plan to address potential risks, including exploring strategic alternatives for Coyote and reducing their workforce by 12,000 positions.

UPS is providing a financial outlook for 2024 based on volume growth. They expect revenues to range from $92 billion to $94.5 billion and operating margin to be between 10% to 10.6%. The first half of the year may see negative growth due to labor negotiations, but the back half is expected to have positive growth. The US Domestic segment is expected to have flat to 2% volume growth and a 10% operating margin by the end of the year. The International segment is expected to have flat to 3% volume growth.

In 2024, UPS expects to see positive volume growth and a decrease in labor cost inflation. They anticipate an operating margin in the high teens for the full year, with revenue in the range of $13 billion to $13.5 billion for Supply Chain Solutions. Capital expenditures are expected to be around 5% of revenue or $4.5 billion, and free cash flow is projected to be between $4.5 billion and $5.3 billion, including pension contributions. The Board has approved a dividend per share of $1.63 for the first quarter, and they plan to pay out around $5.4 billion in dividends in 2024. The effective tax rate for 2024 is expected to be approximately 23.5%. UPS is focused on executing their strategy and improving their financial performance. More details will be shared at their Investor Day event on March 26th.

In this paragraph, the operator introduces a question-and-answer session with Chris Wetherbee from Citigroup. Wetherbee asks about the timing and impact of the 12,000 job reductions and $1 billion cost reduction plan announced by UPS. Brian Newman and Carol Tome provide more details, explaining that 75% of the job reductions will occur in the first half of the year and the rest will be back-end weighted, and that the goal is to change the way UPS operates rather than simply reducing costs. They also mention that the targeted headcount includes both management and contractors.

The company has already implemented $1 billion in cost cuts, with more to come in 2025. They believe that their productivity efforts will continue to offset any potential volume declines and have a strong pipeline of opportunities for further cost cuts. They are confident in their ability to manage hourly headcount and match it to volume levels.

Carol Tome, CEO of the company, announced that at their upcoming Investor Day in March, they will be discussing their plans for an integrated network and exciting ideas for transformation. David Vernon asked about the expectations for operating leverage and Brian Newman, CFO, explained that the volume growth projection for the back half of the year is in the 2-4% range domestically, with CPP growing slower than RPP. This will create operating margin, as they have closed over 30 sorts and are managing more volume with less. Amit Mehrotra asked for clarification on the guidance, which implies $9.6 billion in operating profits and includes the $1 billion in improvements. Brian Newman explained that the $1 billion is included in the guidance and the implied change in profits relative to the improvement in revenue may seem worse but it is due to the $1 billion being factored in.

The company expects revenue to be flat to down 2% in the first half of the year due to lapping of volumes and contract overlap. However, they expect revenue to increase by 4% to 8% in the second half. Profit is expected to grow by 20% to 30% in the second half, with an overall OP margin of 10% to 10.6% for the full year. The $1 billion in cost will be a cost-benefit in 2024, and it will take twelve months to digest the new labor cost. The company is confident in their ability to get back to consistent expansion of US margins as they lap the first year of the contract. There may be additional opportunities for cost reduction, which will be discussed at the upcoming Investor Day.

The speaker discusses the positive impact of technology on their business and the potential for even more growth and productivity in the future. They also mention a future presentation on network consolidation and redirect the question about market share growth to a later conference.

Project Brown is a new approach to business that focuses on speed and efficiency. It has led to improvements in response time, the introduction of new tools like Deal Manager, and increased weekend pickups in key markets. The goal is to capture more market share, particularly in the small and medium-sized segment and healthcare industry.

The speaker discusses the growth of healthcare revenues from $6 billion to $10 billion and plans for continued growth, including market share capture. They highlight the underpenetrated market in the United States and the potential for growth in the greater China Bay area. The speaker also addresses potential competition, including share loss from the Teamster contract and the success of the postal service's new ground advantage product.

The speaker is discussing the potential challenges and changes in the competitive landscape for their company in 2024. They mention that the pricing environment is rational and they expect to keep a significant portion of the GRI (general rate increase) in 2024. They also mention offering a new product and hint at upcoming offerings. The speaker defers big picture discussions to a later date and mentions a potential change in their global view since discussing a labor deal in August or September. They also mention softness in Europe.

Carol Tome and Kate Gutmann discuss the changes in the shipping industry over the past four to five months, specifically the decline in volume and export in Europe. They mention the impact of global events such as low water levels in the Panama Canal and the conflict in the Red Sea on air and ocean freight rates and volumes. They emphasize the need for agility and staying on top of market trends in order to maintain a strong margin.

The speaker is discussing the volume trends and expectations for UPS in the fourth quarter and going into 2024. They mention that they were pleased with the volume momentum and saw sequential monthly improvement, but will likely see tough comps in the first quarter. They also mention their focus on SMB penetration and specifically medium SMB customers.

The speaker answers a question about the company's recent acquisition of Coyote, stating that they initially expected the benefits to be significant but have since realized that Coyote may not fit into their network as originally thought. They also mention purchasing two 747-8 freighters and clarify that they were bought off lease since Boeing no longer produces the model.

The speaker, Carol Tome, discusses the acquisition of Coyote in 2015 and the unexpected volatility in the revenue and earnings of the Supply Chain Solutions business. She mentions the possibility of finding an alternative to this business and provides an update on the company's freighter strategy. A question from Scott Group about the shape of the year is also mentioned.

The speaker discusses the company's expectations for the first quarter, stating that they expect a decrease in margins due to a low mortar mark in the previous year. They also mention that their growth in small package domestic business for the year is conservative, but the long-term outlook for the industry is positive at 3%.

The speaker is discussing their company's plans for growth and how they use external factors to inform their perspective on market growth. They use multiple sources to come up with their best view. The call concludes with the host thanking everyone for joining.

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