UBS Group AG

Good morning. My name is Matthew and I'll be your facilitator today. I'd like to welcome everyone to the UPS third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there'll be a question and answer period. Any analysts that want to ask a question, now is the time to press star then one on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. P.J. Guido, Investor Relations Officer. Sir, the floor is yours.

Good morning, and welcome to the UPS Third Quarter 2025 Earnings Call. Joining me today are Carol Tomei, our CEO, Brian Dykes, our CFO, and a few additional members of our Executive Leadership Team. Before we begin, I want to remind you that some of the comments we'll make today are forward-looking statements and address our expectations for the future performance or operating results of our company. These statements are subject to risks and uncertainties, which are described in our 2024 Form 10-K and other reports we file with or furnish to the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC. Unless stated otherwise, our discussion refers to adjusted results. For the third quarter of 2025, DAP results include a net charge of $164 million, or 19 cents per diluted share, comprised of after-tax transformation strategy costs of $250 million, which were partially offset by an $86 million benefit from the reversal of an income tax valuation allowance. A reconciliation of non-GAAP adjusted amounts to GAAP financial results is available in today's webcast materials. These materials are also available on the UPS Investor Relations website. Following our prepared remarks, we will take questions from those joining us via the teleconference. If you wish to ask a question, press star and then one on your phone to enter the queue. Please ask only one question so that we may allow as many as possible to participate. You may rejoin the queue for the opportunity to ask an additional question. And now, I'll turn the call over to Carol.

Thank you, PJ, and good morning. To start, I want to extend my sincere gratitude to all UPSers for their dedication and hard work. The third quarter brought a wave of tariff changes, some expected, others unforeseen, and our team navigated these complexities with exceptional skills and resilience. At the same time, we continued advancing our network reconfiguration, a critical step in shaping the future of our U.S. business. Amid this significant transformation, I remain deeply impressed by the determination of UPSers and their steadfast commitment to serving our customers and building a stronger, more agile UPS. Turning to our results, in the third quarter, consolidated revenue was $21.4 billion. Consolidated operating profit was $2.1 billion, and consolidated operating margin was 10%. The cash flow pressures we saw in the second quarter eased during the third quarter. As a result, our year-to-date free cash flow reached $2.7 billion. In the third quarter, our focus on revenue quality continued, and as expected, our U.S. average daily volume, or ADV, declined from last year. The largest drivers of the U.S. volume decline were the planned glide down of Amazon volume and a targeted reduction in lower-yielding e-commerce volume. Our focus on revenue quality yielded solid results. as U.S. revenue per piece grew by 9.8% in the third quarter. By coupling solid revenue per piece growth with outstanding expense control, we were able to grow our U.S. operating margin by 10 basis points to what we reported last year on an ADV decline of 2.3 million, or 12.3%. In our international business, total ADV grew 4.8%. Our priority is to our customers. And during the quarter, we ran our international network with agility, rerouting capacity to where our customers needed it. Looking at export ADV, it increased 5.9%, marking the fifth quarter in a row of growth. But due to the changes in trade policy, export volume fell in our higher margin lanes and grew in our lower margin lane. This volume exchange pressured our international operating margin and also pressured our forwarding business. On a positive note, we continue to see strength in healthcare, with strong revenue growth in the third quarter year over year, driven by our portfolio of healthcare logistics solutions. As Brian will provide more details on our financial performance, let me provide some operational updates. In recent years, the spotlight on international commerce and the intricacies of supply chains has intensified. And in 2025, we're witnessing the most profound shift in trade policy in a century. At UPS, this is our domain. Every day, we connect businesses and customers across more than 200 countries and territories, ensuring goods move seamlessly across borders. That includes navigating the complexities of customs brokerage, where we're one of the world's largest customs brokers, managing millions of customs entries annually. Our success is powered by deep expertise, exceptional talent, and cutting edge technology. With our next-gen brokerage capabilities, we harness AI to digitally process over 90% of our cross-border transactions. delivering speed, accuracy, and reliability at a global scale. Following the elimination of the de minimis exemption for U.S. imports, UPS experienced a tenfold surge in daily customs entries. We responded swiftly, upgrading our shipping systems to capture the expanded data requirements mandated by U.S. Customs and Border Protection. To manage the increased volume and complexity, we enhanced our customs brokerage capabilities by integrating agentic AI. This advanced technology streamlined formal entry processes. At UPS, we don't just move goods. We remove friction. By absorbing regulatory complexity, we help our customers minimize disruptions and keep global commerce flowing. And due to the investments we've made in our brokerage business, we can absorb this complexity without adding cost. that isn't offset by revenue. As you know, we have a goal to become the number one complex healthcare logistics provider in the world. To that end, we are making great progress towards our acquisition of Canadian-based Ann Lauer Healthcare Group. The addition of Ann Lauer's capabilities will further strengthen our solutions in global healthcare logistics, particularly in North America. We expect to close this transaction in early November. Now touching on DAP, our digital access program, we have more than 8 million SMBs on DAP. And in the first nine months of the year, we generated over $2.8 billion in global DAP revenue, an increase of 20% year over year. DAP continues to be an important SMB growth engine. And for the full year, we expect to deliver over $3.5 billion in global DAP revenue. Before we move on, let me provide updates on our Amazon Glide Down efforts and our Ground Saver product. Our Amazon Glide Down efforts are proceeding as planned. As expected, in the third quarter, we experienced a stepped-up volume decline with Amazon, versus last year, Amazon's total volume decline in the third quarter was 21.2% compared to 13% for the first half of the year. In tandem with this change, we are continuing to reconfigure our UF network. We closed an additional 19 buildings, bringing our total so far this year to 93 buildings. Further during the quarter, we completed a successful voluntary retirement program for many long-term drivers who welcome the opportunity to retire from UPS after decades of dedicated service. In total, our network reconfiguration and cost-out efforts are on schedule, and the profit improvement we expect to see from the Amazon Glide Down initiative is on plan. In a few minutes, Brian will provide more details about our progress here. Moving to Ground Saver. In the third quarter, our Ground Saver average daily volume declined 32.7% year-over-year, due primarily to the actions we've taken with Amazon and to trim lower-yielding e-commerce volume. We recently reached a preliminary understanding on revenue and rates with the United States Postal Service to support last mile delivery for our ground saver product. There's still more work to do, but we are confident we will come to an agreement that ensures our service levels will remain best in class. Which brings me to peak. As we've discussed, our top 100 customers drive about 80% of our peak surge each year, and we expect that to be the case again this year. Early forecasts from these customers suggest they are planning for a good peak. That will result in a considerable surge in volume from our current volume levels. But remember that given the Amazon glide down plan, we expect total peak average daily volume in the U.S. to be down year over year. Operationally, we're poised to deliver a strong peak season driven by several key factors. First, thanks to strategic enhancements made through our Network of the Future initiative, we're operating more efficiently than ever. These changes will allow us to reduce reliance on seasonal hires and significantly cut back on leased trailers, vehicles, and aircraft compared to previous year. Much of this efficiency is powered by automation. Over the past year, we've deployed new automated systems in 35 facilities. In the fourth quarter, we anticipate 66% of our volume will move through automated processes, up from 63% during the same period last year. Second, as we approach the peak shipping window, we'll continue to leverage our proven technologies and scale the network where needed, all while maintaining a sharp focus on service quality. These advancements position us to run the most efficient peak in our history. We've set the standard for holiday shipping, seven consecutive years of industry-leading service, and we're confident that our operational strategy and commitment to excellence will make it eight. With the uncertainty around tariffs now somewhat resolved and clearer peak forecasts from our largest customers, we're in a stronger position to offer guidance than we were at the end of the second quarter. As I wrap up, let me share our financial expectations for the fourth quarter. We anticipate consolidated revenue of approximately $24 billion and consolidated operating margin of approximately 11 to 11.5%. Brian will walk you through the details of our fourth quarter outlook shortly. Amid a rapidly evolving global landscape, UPS is executing the most significant strategic shift in our company's history. We're focused on winning where it matters most, capturing high-value parts of the market and onboarding customers with increasingly complex logistics needs. Our company is rock-solid strong, with more than sufficient liquidity to deliver upon our transformation and return capital to share owners. The changes we're implementing are designed to deliver long-term value for all stakeholders. So with that, thank you for listening, and now I'll turn the call over to Brian.