In the UPS first quarter 2025 earnings call, Investor Relations Officer PJ Guido introduces CEO Carol Tome, CFO Brian Dykes, and the executive team, discussing forward-looking statements. Carol Tome expresses satisfaction with UPS's performance despite a challenging environment, attributing success to the employees' efforts and strategic execution. The financial results show UPS's consolidated revenue at $21.5 billion, a slight decrease from the previous year, while operating profit grew by 0.9% to $1.8 billion. The operating margin increased by 20 basis points to 8.2%, and diluted earnings per share rose by 4.2% to $1.49, both slightly surpassing expectations.

In the second paragraph, the article discusses the ups and downs of a company's domestic and international operations in the first quarter. Domestically, operating profit increased by $164 million, with a 110 basis point expansion in operating margin. While revenue and volume met expectations, U.S. average daily volume (ADV) was inconsistent, initially showing less decline due to strong performance in certain customer segments, but later dropping in February and March due to global trade uncertainties. Internationally, there was a rise in demand for U.S. inbound services, boosting U.S. outbound volume by 9.5% due to anticipated tariff changes. The company is also executing strategic actions, including a plan to cut Amazon's unprofitable volume by over 50% by mid-2026, while retaining profitable Amazon volume like returns and seller-fulfilled outbound volume.

In the first quarter, Amazon's average daily volume decline was slightly ahead of schedule, but is expected to align with plans by mid-year. The company's network reconfiguration, which aims to optimize capacity and increase automation, is the largest in its history and aims to reduce labor dependence, capital requirements, and improve operating margins. Despite closing 11 buildings in 2024 and planning 164 operational closures, including 73 building closures by June, Amazon remains committed to customer service with minimal disruption. The company is working with larger customers to update operating plans and ensuring accessibility for SMBs through its network of UPS stores and Access Points.

The paragraph details several strategic actions and growth updates for UPS. The company transitioned from SurePost to Ground Saver to enhance final mile delivery efficiency. Their "Efficiency Reimagined" initiative aims to save $1 billion by automating tasks and improving purchasing, with benefits expected to increase in the second quarter. UPS is also focusing on high-growth areas like Healthcare, International, B2B, and SMBs. They announced the acquisition of Andlauer Healthcare Group to enhance healthcare logistics in Canada, expecting to finalize this by the second half of 2025. Additionally, SMBs account for 31.2% of U.S. volume, with global revenue from their Digital Access Program growing by 24% year-over-year.

The paragraph discusses UPS's reintroduction of UPS Ground with freight pricing for shipments over 150 pounds, positioning it uniquely in the market. The company is navigating complex tariff issues, noting that its U.S. import volume is 2% of total global volume, with significant revenue from China and other trade lanes to the U.S. UPS is consulting with major U.S. customers on their strategies to handle tariffs. Internationally, most customers plan to maintain their shipping strategies, though some are considering changes due to evolving trade policies.

The paragraph discusses the current strategies and services of a company in response to changing customer behaviors and potential tariff-related cost increases. Customers are reducing inventory levels and shifting from air to ocean freight. The company sources $2.7 billion of its purchases outside the U.S. with minimal exposure to China. It focuses on easing business for customers by enhancing brokerage capabilities and offering the Global Checkout Product, which provides transparent and guaranteed landed costs during online checkout. This service is available in 43 countries. The company also offers bonded warehousing and foreign trade zone solutions. Acknowledging market uncertainty, the company continually models different scenarios to adapt to potential significant impacts on trade.

The paragraph discusses the company's cautious approach to its full-year outlook due to prevailing economic uncertainties. It mentions that while the company is not updating its annual forecast, it remains focused on executing its strategic and financial objectives. The company provides guidance for the second quarter and anticipates gaining more clarity on tariffs and trade impacts by then. It expresses confidence in its position within the global logistics sector, highlighting its network's agility and expertise. Recent strategic actions to reconfigure the network and cut costs are deemed timely, positioning the company for future strength. Additionally, Brian Dykes will discuss the first quarter results, cost reduction progress, reduced Amazon volume, and 2025 outlook.

In the first quarter, the company reported a revenue decline of 0.7% to $21.5 billion but saw an increase in consolidated operating profit by 0.9% to $1.8 billion and in operating margin by 20 basis points to 8.2%. Diluted earnings per share rose by 4.2% to $1.49. While quarterly performance met expectations, monthly performance varied. U.S. Domestic volume saw a decline, with ADV down 3.5% and ground and air volumes decreasing. Excluding Amazon, air ADV grew due to healthcare and high-tech demand. Ground Saver experienced a first-time decline in five quarters due to pricing strategies to improve e-commerce yields. B2B volume grew by 1.5%, led by returns, while B2C volume decreased by 7% due to Amazon's managed volume decline and demand softness. SMBs accounted for 31.2% of U.S. volume, with strong growth of 4%.

In the first quarter, there was a notable increase in SMB concentration, contributing to changes in volume and revenue quality. The U.S. Domestic segment saw a revenue increase to $14.5 billion, up 1.4% from the previous year, largely due to air cargo. Revenue per piece rose 4.5% year-over-year, aided by higher base rates, package characteristics, customer and product mix, and fuel surcharges. Although total expenses rose by 0.2%, efficiency improvements, such as insourcing Ground Saver volume and adjusting air network operations, helped mitigate costs, despite challenging weather. Consequently, the U.S. Domestic segment reported a $1 billion operating profit, marking a 19.4% increase, and an operating margin of 7%. The International segment also demonstrated growth, with a 7.1% increase in total international average daily volume.

In the first quarter, international daily volume and revenue saw modest growth, with export volume increasing significantly, particularly in Asia and Europe. However, revenue per piece declined due to a stronger U.S. dollar and decreased surcharges. The International segment's operating profit fell due to a service mix shift and investments in Europe. Supply Chain Solutions' revenue decreased mainly due to the divestiture of Coyote in 2024, but Air and Ocean Forwarding revenue remained stable. Core logistics and UPS Digital saw revenue growth. Operating profit for Supply Chain Solutions dropped due to cost pressures, particularly from expiring USPS contracts affecting their Mail Innovations business.

The paragraph provides a financial summary and update on UPS's operational strategy. In the first quarter, UPS reported an interest expense of $222 million, other pension income of $37 million, and an effective tax rate of about 22.5%. The company generated $2.3 billion in cash from operations and $1.5 billion in free cash flow. UPS also paid $1.3 billion in dividends and repurchased $1 billion in shares. The company is reducing its volume delivery for Amazon by over 50% by mid-2026, leading to significant network reconfiguration, including 164 operational and 73 building closures by June. This initiative is part of UPS's broader strategy to improve efficiency and profitability by expanding its U.S. Domestic operating margin. Costs are organized into three categories: variable, semi-variable, and fixed costs, which will be managed in line with volume changes and network adjustments.

The paragraph outlines the company's strategy to adjust its operations in anticipation of a reduction in Amazon volumes by 2025, aiming to cut $3.5 billion in expenses this year. This involves roughly equal reductions in variable, semi-variable, and fixed costs. Variable costs will be reduced by decreasing operational hours by 25 million. Semi-variable costs involve reducing around 20,000 positions, linked to closing buildings across the U.S. Fixed costs include closing 73 buildings, predominantly in the Eastern U.S., by June's end. The Amazon Average Daily Volume (ADV) decline is on track, with first-half expectations met and a 30% decline projected for the latter half of the year.

The company has developed a comprehensive checklist to manage building closures while maintaining service quality, supporting employees, and utilizing technology for efficient network operations. Their "Efficiency Reimagined" initiatives are improving processes like procurement and customer onboarding, aiming to accelerate savings from the second quarter onward. They have made progress toward a $3.5 billion cost reduction target for 2025, adjusting for reduced Amazon volume. Despite an uncertain macro-environment due to changing trade policies and tariffs, they are prepared for various scenarios to continue customer support and pursue growth. They are cautious about their capital and purchasing plans, providing only second-quarter outlooks without updating their full year forecast. Their international business anticipates effects from announced tariffs, changes to de minimis exemptions, and expects mixed demand on trade lanes.

The paragraph outlines various financial expectations for a company's performance in the second quarter. In the domestic business, a margin of approximately 9.3% is expected, with U.S. revenue anticipated to decrease slightly, and a 30 basis point increase in domestic operating margin compared to the previous year. Small and medium-sized businesses (SMBs) are expected to be more affected by economic uncertainty, impacting margins. Internationally, revenue is predicted to decline by approximately 2%, with operating margins in the mid-teens due to reduced demand-related surcharges and trade uncertainties. In Supply Chain Solutions, a $500 million revenue decline is expected due to the previous year's revenue from Coyote, with operating margins projected in the high single digits. Total expenses for the quarter are estimated at about $160 million, and the tax rate is expected to be between 23% and 23.5%. The company is focused on reshaping its volume mix, reducing costs, and reconfiguring its U.S. network to improve long-term profitability, drive cash generation, and deliver shareholder value. Tom Wadewitz then asks for clarification on the expected full-year cost offset due to a $3.5 billion reduction, how it might offset reduced Amazon revenue, and its impact leading into 2026.

The paragraph discusses plans for Amazon's cost reduction strategy, targeting a $3.5 billion decrease. Brian Dykes outlines that these reductions will be categorized into variable, semi-variable, and fixed costs, with fixed costs largely addressed in the latter half of the period due to the closure of 73 buildings. Carol Tome notes that Amazon's volume decline is more pronounced in the latter half of the year. By 2026, additional cost reductions are expected as part of the 18-month glide-out plan, leading to further efficiency improvements beyond 2025. Tom Wadewitz confirms that the company aims to cut more costs than the revenues lost, as the lost revenue was not beneficial to the business.

The article discusses the "Efficiency Reimagined" initiative, which aims to make business processes more efficient and productive, independent of the decline in Amazon volume. The plan includes a cost reduction of $500 million this year, growing to $1 billion by 2026, primarily through restructuring efforts. Carol Tome highlights the objective of reducing dependency on labor by incorporating robotics and warehouse automation. Automated processes include automatic label application, package sorting, and loading/unloading of trailers. Nando Cesarone adds that 400 facilities will be partially or fully automated as part of this initiative.

The paragraph discusses how UPS is using new automation technology and AI to improve efficiency and reduce costs, resulting in the closure of 200 facilities. This strategy is expected to increase productivity and reduce labor dependency, helping UPS to achieve a 12% U.S. operating margin by the end of 2026. The company is currently automating more of its operations, with 64% of their volume now passing through automated hubs, an increase from the previous year. Scott Group from Wolfe Research questions the deceleration in margin improvement in Q2 despite increased cost savings, asking if it's due to worsening macroeconomic conditions. Brian Dykes acknowledges this query without providing a specific answer.

In the paragraph, Scott highlights that $500 million of a $3.5 billion initiative is set for Q1, with plans to increase in Q2 as Amazon volume and other initiatives ramp up. In Q2, the company anticipates a slowdown in volume, especially among small and medium-sized businesses (SMBs), due to announced tariffs, which could impact revenue per piece (RPP) and margins. The company is also closing 7% of its U.S. buildings, leading to additional management costs. Carol Tome adds that many SMBs rely entirely on sourcing from China, and the announced 145% tariff and removal of the de minimis exception are creating uncertainty. Many SMBs lack the capital to prepare for such increases and might seek alternative suppliers, although larger companies are likely to be prioritized for supply chain changes. The overall forecast for Q2 considers these uncertainties surrounding the China tariffs.

The paragraph discusses the uncertainty in the market, particularly regarding tariffs, supply chains, and changes like the reduction of Amazon's influence. Carol Tome provides insights on expected growth in the small package industry in the U.S., which was projected to see low single-digit growth in volume and value. The international market, sized at $99 billion, was anticipated to grow in the mid-single digits, with the healthcare segment expected to grow in the high single digits. Healthcare performed well, with growth reflected across all operating segments and a nearly 5% year-on-year increase in average daily net revenue in the first quarter.

The paragraph discusses UPS's ability to adapt to changes in the global supply chain due to its extensive presence in over 200 countries. It references the company's successful navigation of trade shifts during the imposition of China tariffs in 2018. David Vernon from Bernstein asks about the financial outlook for 2026 and the impact of SurePost insourcing on domestic business. Brian Dykes responds, noting that the $3.5 billion cost savings applies to 2025, with expectations of a similar figure for 2026. Furthermore, he discusses a decline in Ground Saver volume by 8.5%, largely intentional, as UPS adjusts its cost structure and product offerings while focusing on revenue quality.

In the discussion, Carol Tome and Brian Dykes address the company's strategy, indicating an intentional reduction in less profitable business areas, which will also be reflected in the second quarter. They affirm that there is no increase in turnover due to competition with the post office. The company has insourced operations to ensure liability for their customers, achieving almost 97% on-time delivery in the first quarter. Chris Wetherbee from Wells Fargo inquires about international profit margins, particularly regarding the China-U.S. trade lane. Brian Dykes explains that while they expect a decline of less than 25% in the China-U.S. lane, this will be offset by improvements in other trade routes. Despite China-U.S. being the most profitable lane, shifting trade flows will create some profit headwinds.

The paragraph discusses expectations for growth in international margins, which were temporarily reduced due to investments in weekend delivery services in Europe. Carol Tome expresses optimism about these investments, anticipating margin expansion later in the year as these costs are amortized. The discussion then shifts to uncertainties related to China tariffs, particularly the de minimis rule impacting small and medium-sized businesses (SMBs) by imposing duties on imports valued at $800 or less. The company remains hopeful for clarity on this issue by the end of the second quarter and mentions their efficiency in clearing goods, with goods being processed without manual intervention 85% of the time.

The paragraph discusses the challenges and strategies related to tariffs and trade uncertainties affecting U.S. and international markets. Carol Tome and Brian Dykes outline the need for adaptability as tariffs impact U.S. consumers and businesses. They emphasize the ability to manage changing inventory levels and sourcing shifts, suggesting commerce will continue despite consumer sentiment being down. Ken Hoexter queries the disparity in expectations between international and U.S. markets, with Brian Dykes noting trade offsets help internationally, but the uncertainty remains significant mainly for the U.S. market. Carol Tome suggests that additional context on "trade shifts" might be provided by Kate.

The paragraph discusses a shift in global export patterns, highlighting the "China Plus One" strategy where companies diversify their manufacturing and sourcing beyond China to other countries like Mexico. This strategy has led to significant export growth from non-China regions, particularly citing South Korea with a 24% increase in exports. The discussion also touches on healthcare and international commerce growth. Additionally, a conversation about customer inventory management is brought up, noting that 95% of customers plan to maintain their outlook while temporarily drawing down inventories. The impact of this on volumes and the duration of inventory drawdowns depends on specific importers.

The paragraph discusses importers' strategies, focusing on large retailers buying inventory 30, 60, or 90 days in advance without making significant changes to their business model, implying stability despite uncertainties. Jason Seidl raises concerns about potential short-term pressure on volumes due to reduced inventory, but Carol Tome highlights shifting trade lanes, anticipating stable international business performance. Brian Dykes notes a projected 25% decline in China-to-U.S. trade but a 40% increase in China-to-rest of the world trade, driven by shifting demand and Chinese manufacturers providing incentives. The conversation touches on adjusting costs and network capacities to accommodate this evolving trade landscape.

The paragraph discusses a conversation between UPS executives and analysts about the company's ability to flexibly manage its globally integrated network in response to changing customer needs. As air volume declines in the United States, more capacity is available for international operations. Stephanie Moore from Jefferies inquires about preparations for the peak shipping season amidst inventory drawdowns and a potentially disruptive supply chain environment. Carol Tome responds that UPS is currently in discussions with customers, particularly large enterprise retailers who can financially navigate tariffs, whereas smaller retailers might be reconsidering their holiday orders due to financial constraints.

The paragraph discusses the uncertainty surrounding China tariffs and the potential scenarios that could unfold, affecting supply chains and business operations. It highlights the importance of planning for peak seasons, considering various scenarios such as order fulfillment and supply shocks. The speakers emphasize the need for flexibility, including the use of temporary resources and adjusting logistics strategies like air versus ocean transport. The conversation ends with a transition to a question about the feasibility of the China Plus One strategy, particularly for small and medium-sized businesses (SMBs), and how quickly they can adapt their supply chains.

The paragraph discusses the trade dynamics and growth in exports from various regions to the U.S. Carol Tome notes that international revenue exposure to the U.S. is relatively low, making it manageable. Kate Gutmann highlights growth in exports from Europe, Vietnam, and Thailand to the U.S., emphasizing a shift in global manufacturing and sourcing practices, particularly with SMBs looking at nearshoring solutions. She refers to a "China Plus" strategy involving relocation of manufacturing outside China. Brian Dykes adds that investments in infrastructure, like air expansions, are being made to support these changes. The discussion also touches upon the economic impact of tariffs, with China posing more uncertainty compared to the rest of the world.

The paragraph discusses the company's financial health and future outlook. The speaker expresses confidence in the company's capital allocation policies, highlighting a strong balance sheet with a debt-to-EBITDA ratio of 2.26, below their 2.5% target, and $5 billion in cash on hand. They note that they have ample liquidity with an unused $3 billion CP program. Regarding restructuring charges, they mention a cash and non-cash split and expect updates as they continue restructuring through 2026. In response to Bruce Chan's question, they address concerns about recessionary scenarios and the impacts of a network realignment on operational flexibility, such as adjusting Transat flights or labor, given their labor agreements.

Carol Tome and Brian Dykes discuss their company's strategy to increase agility and financial flexibility by reducing reliance on Amazon, noting that much of the volume from Amazon is unprofitable. They are closing operations in several facilities to streamline and automate their network, allowing for better efficiency in managing volume fluctuations. They emphasize the importance of focusing on complex healthcare logistics as a recession-proof and growth-oriented sector, distinguishing their business from simpler delivery tasks.

The paragraph discusses UPS's commitment to pursue growth through acquisitions, such as the recent Andlauer announcement, and to continue expanding its core business to position itself for the future. It concludes with a transition back to the host, PJ Guido, who ends the call and thanks the participants.

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