United Parcel Service, Inc.

Ladies and gentlemen, we'd like to say good morning to you, and my name is Steven, and I will be your conference facilitator today at this time. I would like to welcome everyone to the UPS Investor Relations first quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer period. It is now my pleasure to turn the floor over to your host, Mr. Scott Childress, Investor Relations Officer. Sir, the floor is yours.

Good morning, and welcome to the UPS first quarter 2020 earnings call. Joining me today are David Abney, our CEO, Brian Newman, our CFO, Kate Gutman, our Chief Sales and Solutions Officer, along with International President Nando Cicerone, President of U.S. Operations George Willis, our Chief Information and Engineering Officer Juan Perez, and Scott Price, our Chief Strategy and Transformation Officer. Before we begin, I want to remind you that some of the comments we'll make today are forward-looking statements within the federal securities laws and address our expectation for the future performance or operating results of our company. These statements are subject to risk and uncertainty, which are described in detail in our 2019 Form 10-K and other reports filed with the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC. During the quarter, GAAP results included a pre-tax charge of $45 million or 4 cents per share on an after-tax basis. The charge resulted primarily from transformation-related activities. In the prior year period, adjusted results excluded a pre-tax charge from transformation costs of $123 million or 11 cents per share on an after-tax basis. Unless stated otherwise, our comments will refer to adjusted results. The webcast of today's call, along with the reconciliation of non-GAAP financial measures, are available on the UPS Investor Relations website. Webcast users can submit live questions during the call. We will attempt to answer questions of a long-term strategic nature. Callers are asked to submit only one question so that we may allow as many as possible to participate. Thank you, and now I'll turn the call over to David.

Thanks, Scott, and good morning, everyone. I would first like to thank UPSers worldwide for going above and beyond during the coronavirus pandemic. Since this crisis began, we have been operating as a critical infrastructure business, leveraging the strength of our global network to keep supply chains moving around the world. People are counting on UPS more than ever before, and I am proud of the heroic actions of our employees throughout this pandemic. This crisis touches all parts of our business and we have been methodical in our response. Our actions prioritize safety, focus on our customers, ensure our liquidity, and position UPS for additional opportunities as conditions improve. Regarding safety, we have adjusted our health and safety protocols throughout our company. with increased social distancing, which includes waiving customer signature requirements where possible, more personal protective equipment or PPE for our people, frequent cleaning of our facilities and equipment, and teleworking for our employees where feasible. Those are just some of the safeguards we've implemented to protect our people and customers and we will continue to adjust as conditions change. I also want to recognize the extraordinary efforts of healthcare professionals and everyone on the front lines in the communities where we live and work. On behalf of UPS, we are grateful for their efforts and sacrifices. UPS is one of the few companies with the logistics expertise and global infrastructure to keep critical healthcare and other supply chains moving. We've embraced our leadership role supporting FEMA with Project AirBridge and other healthcare-related missions by managing charter flights to deliver millions of pounds of PPE and test kits from around the world into dedicated UPS distribution space outside Whirlport. From there, we're providing overnight delivery to locations throughout the U.S. UPS is also assisting other federal and state government agencies and supporting customers like 3M, Kaizen, Henry Schein, McKesson, and Sanmar as they quickly adapt their supply chains to manufacture and distribute PPE and other supplies. Many companies are coming together with ingenuity and speed to solve the most urgent and complex healthcare challenges of this crisis. For example, we have the distinction of partnering with GM and Ventag Life Systems to provide transportation and logistics services for their advanced technology ventilators now being produced in GM's retooled manufacturing facilities. I'll add that we're doing all of this while U.S. Domestic is delivering industry-leading on-time performance. As China began to recover in March, our Asia outbound business accelerated both air freight and small package, including the healthcare, high tech, and e-commerce sectors. We quickly added capacity to keep critical supply chains moving and commerce flowing. And outbound demand from Asia has continued. What's more, as part of FEMA's Project Air Bridge and other healthcare-related missions, we increased the number of flights by over 200 to transport critical life-saving cargo to the U.S. and Europe. Countless companies are relying on UPS to help keep their businesses running and to support their coronavirus response efforts. One fine example is the e-commerce support we're providing to Target. When the coronavirus pandemic forced millions of Americans to stay at home, communities across the country turned to Target, and Target turned to UPS. Consumer e-commerce demand for essential and necessary goods surged, and UPS has been there with excellent on-time delivery. Several years ago, we identified healthcare and e-commerce as two of our strategic growth imperatives, and we've been investing in innovative solutions to enhance our capabilities. In healthcare, we're expanding UPS Premier, our next-generation, on-package sensor and visibility technology for critical healthcare shipments. And starting in May, in cooperation with the FAA, UPS Flight Forward, our drone subsidiary, will deliver prescriptions from a CVS store in the Villages, which is the largest U.S. retirement community and is located in Florida. With our new healthcare unit, we are well positioned to continue to assist our customers as more countries move into recovery and demand for healthcare supplies evolves. And in e-commerce, our digital access program for SMBs, one of our strategic imperatives, greatly increases their e-commerce market reach. And we continue to deploy UPS Nav, the latest enhancement to our proprietary Orion navigation software. UPS Nav further supports our drivers with the increase in residential volume. These solutions and many more will enable us to build upon our existing customer relationships and foster new opportunities with others during these challenging times. In fact, UPS is poised and ready to help all customers large and small resume business as markets reopen. In late January, we provided our 2020 guidance, which did not include any impacts from coronavirus. It was early then, and no one could have foreseen the significant impact it would have on our customers and the global economy. In fact, over my 46-year career at PPS, I have never seen the level of demand variability in the markets we serve and among our customers that we are now experiencing. Throughout the quarter, we adjusted our network and controlled costs, but we were not able to fully offset the unprecedented and swift changes in market demand and mix. Business closures and stay-at-home restrictions disproportionately affected SMBs, and we're seeing a dramatic shift in consumer shopping behavior. By late March, residential deliveries approached nearly 70% of our volume and drove increased delivery costs. a trend we're seeing continue in April. Brian will add more detail on this in a moment. Most economists are currently predicting a recession, but there's broad disagreement on the length and shape of the recovery. The main economic indicators, U.S. industrial production, U.S. retail, global industrial production, and global exports are all forecasted to decline significantly. Due to the uncertainties ahead, we are unable to predict the business impact of the pandemic or reasonably estimate our financial performance in future quarters. As a result, we are withdrawing 2020 guidance. Importantly, UPS generated good cash flow in the first quarter, and our liquidity remains strong. We continue to make prudent financial decisions and have additional options available to ensure ample liquidity. In addition, our dividend remains a high priority and is a hallmark of our financial strength. We're confident our actions will continue to enable us to fund the business and support share owner interest. As a result of changing business conditions, we analyzed our 2020 CapEx projects and have reprioritized our spending to those key investments necessary to support transformation. We're reducing CapEx by $1 billion. This decision was governed by two priorities. First, we will continue to make investments that best position the company to seize future opportunities as conditions improve. And second, we are prioritizing investments and spending that yield the greatest long-term benefits to the company. For example, we remain on track to speed up the U.S. ground network and expand weekend operations. These efforts will bolster our competitive position and help all customers meet the demand for faster delivery. Also, we will continue expanding our integrated network by adding about 5 million square feet of automated capacity this year. More automation reduces our costs, enhances our network flexibility, and enables the creation of innovative solutions for our customers. Before I turn it over to Brian, I want to congratulate Carol Tomei on being named UPS's 12th CEO. Carol has great knowledge of UPS. from serving on our board for 17 years, and she has a proven track record of leading a global organization through volatile economic cycles. She brings a vast understanding of retail, e-commerce, strategy, and the extensive financial background to the company. Carol is the right person to guide UPS at this time in our history. She officially takes over on June 1st. but the transition is well underway. We've been working closely on all aspects of our business, including UPS's response to the coronavirus pandemic. Carol's unbridled enthusiasm and passion comes through naturally in our daily interactions. She has hit the ground running, and I have great confidence in her ability to lead our company into the future. And now, Brian will take you through the details for the quarter.