United Parcel Service, Inc.

Good morning. My name is Steven, and I will be your conference facilitator today. I would like to welcome everyone to the UPS Investor Relations first quarter 2021 earnings conference 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 2021 earnings call. Joining me today are Carol Tomei, our CEO, and Brian Newman, our CFO. 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 2020 Form 10-K and other reports we file with the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC. For the first quarter of 2021, GAAP results include a net benefit of $2.4 billion, or $2.70 per diluted share. comprised of an after-tax mark-to-market pension benefit of $2.5 billion and an after-tax transformation and other charges of $140 million. The mark-to-market pension benefit was primarily driven by the enactment of the American Rescue Plan Act, the resulting elimination of our balance sheet liability related to the Central States Pension Fund as well as the remeasurement of the UPS IBT pension plan at the current discount rate. Together, these reduced our pension liability by $6.4 billion. Unless stated otherwise, our comments will refer to adjusted results, which exclude the mark-to-market pension benefit and transformation and other charges. The webcast of today's call along with the reconciliation of non-GAAP financial measures, are available on the UPS Investor Relations website. Following our prepared remarks, we will take questions from those joining via the teleconference. If you wish to ask a question, press 1, then 0 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, Scott, and good morning, everyone.

We are now more than a year into the COVID-19 pandemic, which drove enormous change to how we all live and conduct business. I want to thank our more than 540,000 UPSers for continuing to deliver what matters and for serving our customers, communities, and each other. Looking at the first quarter, our results exceeded our expectations, driven by an improving macro environment and great execution by our team. Consolidated revenue in the quarter rose 27% from last year to $22.9 billion, and operating profit grew 164% to $2.9 billion. All of our business segments delivered strong performance in the first quarter. We reported record profits and a double-digit operating margin in our U.S. domestic segment, record first-quarter profit in our international segment, and record operating profit and operating margin in supply chain and freight. As shown in our results, our team is advancing our customer-first, people-led, innovation-driven strategy under the Better Not Bigger framework. As we've discussed, Customer First is about building capabilities that matter the most to our customers and using those capabilities to capture the best opportunities in the market, like small and medium-sized businesses and healthcare. In the U.S., the improvements we made last year and continue to make this year to speed up our ground network enhance our digital access program known as DAP, and expand weekend operations. Well, these are taking hold. In fact, during the first quarter, we added nearly 150,000 new DAP accounts, and we are well on our way to hitting our $1 billion DAP revenue target by the end of this year. Further, in the U.S., total average daily volume growth for SMBs, including our platform businesses, reached an all-time high of 35.6%, outpacing the growth rate of our larger customers for the third consecutive quarter. This mix improvement and certain other revenue quality actions are delivering results, with U.S. domestic revenue per piece up 10.2% in the first quarter. Looking at our international segment, we were able to meet elevated customer demand by leveraging the agility of our network. Export volume grew double digits in all regions. Commercial volume increased 10.1 percent, and SMB average daily volume was up 23 percent in the first quarter. And we see even more opportunity moving ahead as we expand DAP and other solutions to key international markets. During the quarter, Our supply chain and freight segment responded well to market demands. We are on track to complete the divestiture of our UPS freight business by the end of this month, and we look forward to our new commercial relationship with TFI. Our focus on the customer includes improving the end-to-end experience. In other words, improving the experience from the shipper to the receiver, as both are customers. we've identified a number of customer journeys and candidly pain points that we are addressing. Let me give you an example. Until recently, paying a UPS bill online was a poor customer experience. So we replaced our old homegrown system with a new SaaS application, which we began deploying globally in the first quarter. Once fully implemented, Our industry-leading billing solution will make it easy for nearly 2 million global customers to pay and manage their UPS bills. This will be particularly helpful for our SMB customers. Our customer-first aspiration is to provide the best digital experience powered by our smart global logistics network. A simplified billing experience is one aspect of this aspiration. Another is the digitization that's occurring within our supply chain and freight segment. We are moving from telephone-based quotes to online quoting. This new digital experience is driving simplification across the entire value chain. We'll talk more about our efforts to improve our customers' experiences during our June Investor and Analyst Day. We know that our customers place high value on the reliability of the UPS network, That's why we led the market by reinstating our service guarantees for U.S. next-day air services and worldwide express services for all origins and destinations. We intend to be the carrier that shippers and receivers can count on for reliable delivery. And as it relates to COVID-19 vaccines, our global expertise, technology, and network are enabling us to move vaccines kits, and dry ice over great distances around the world. As of last week, we've delivered more than 1.1 million shipments, about 196 million vaccine doses to about 50 countries and territories, and utilized our UPS Premier service to achieve 99.9% on-time delivery. The combination of our efforts to remove friction in the customer experience, provide the digital capabilities that matter most, and deliver industry-leading service levels are positioning us for future growth. Further, as we've discussed, market demand is outpacing industry supply, and we expect this dynamic to continue for the foreseeable future. GDP forecasts are being revised higher, economies are reopening, and U.S. consumer spending is being boosted by government stimulus programs. This demand-supply imbalance creates an environment where pricing in the industry should remain firm. Brian will cover more of our economic outlook in his remarks. People led is an important part of our strategy. Our success in the first quarter was due to the commitment of our people and the strength of our culture. Every UPSer has a role to play in supporting our customers. We've hired a lot of new UPSers. so we know we need to focus on employee safety and training. In the U.S., we have reimagined our driver safety program by truly taking it on the road. We've created mobile units that can be rapidly deployed across the country. These units provide classroom training and a learning lab within movable trailers. Our mobile training, along with other vehicle safety technologies, are making a difference. So far this year, we've improved auto accident frequency by 2.1% globally, and we will continue to advance our employee safety programs around the world. Moving to innovation-driven, over the past several years, we have invested in automation, introduced new technology, and opened new facilities. We are now starting to reap productivity benefits from these investments. the additional flexibility we've gained in the network enables us to be more responsive to changes in demand and be more efficient. In fact, in the first quarter, compared to last year, productivity improved in nearly all major operating categories. But we have more to do. We aim to make productivity a virtuous cycle, not just a transformation project. We are laser-focused on operational excellence, and we'll share more details about our efforts here during our conference. Let me take a moment to touch on one of our five core principles, which is maintaining a strong balance sheet and credit rating. We have made great strides in this area by reducing financial leverage and improving share owner's equity. Brian will share the details on this in a moment. Our strategy is gaining traction. and we see even more opportunities ahead. We look forward to sharing the details with you at our upcoming Investor and Analyst Day. And now, I'll turn the call over to Brian.