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 2022 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. Any analyst that wants to ask a question, now is the time to press the one then zero on your telephone keypad. It is now my pleasure to turn the floor over to our host, Mr. Ken Cook, investor relations officer. Sir, the floor is yours.

Good morning and welcome to the UPS first quarter 2022 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 expectations for the future performance or operating results of our company. These statements are subject to risks and uncertainties, which are described in our 2021 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. For the first quarter of 2022 gap results include a net charge of $19 million or two cents per diluted share. comprised of after tax transformation and other charges of $43 million offset by an after tax gain of $24 million resulting from the curtailment of benefits in a Canadian retirement plan. Unless stated otherwise, our comments will refer to adjusted results, which exclude pension adjustments and transformation into other charges. The webcast of today's call, along with the reconciliation of non-GAAP financial measures, is 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 1 and 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, Ken, and good morning. This is my eighth earnings call at UPS. Since I joined the company, we've faced a pandemic, social unrest, political unrest, the fallout from Brexit, and now a war. Through it all, I continue to be so impressed by the resiliency of UPSers and their commitment to moving our world forward by delivering what matters. I want to thank our team for their hard work and efforts in serving the needs of our customers, each other, and our communities during these most trying times. Before I discuss our results, I'd like to address our situation in Ukraine. Our hearts are with the people of Ukraine who are feeling the effects of this tragedy firsthand. We have suspended all commercial operations in Ukraine, Belarus, and Russia. Where we can, we are supporting humanitarian relief efforts, and our focus is on the safety of our people. Putting the issues in Eastern Europe aside, as we discussed in February, we expected the macro environment to be dynamic. And it was our average daily volume fell short of our plan due to several external factors that Brian will detail. But we remained focused on controlling what we can control and looking at the first quarter, we were pleased with our results. Consolidated revenue rose 6.4% from last year to $24.4 billion and operating profit grew 12.1% from last year. to $3.3 billion. Consolidated operating margin expanded to 13.6%, which was 70 basis points above last year. All of our business segments delivered operating profit growth. Of note, our supply chain solutions businesses generated record operating profit of $481 million, with a record operating margin of 11%. driven by strength in forwarding and healthcare. We continue to pivot toward opportunity. We've made tremendous progress over the last two years. We are leveraging the power of our data to become much more agile. Under our Better Not Bigger framework, we are investing in the capabilities that matter the most to our customers. And we are winning in the parts of the market that value our end-to-end network. like SMBs, healthcare, B2B, and large enterprise accounts. How do we know we are winning? Because we've gained market share. Winning comes down to successfully executing our customer-first, people-led, innovation-driven strategy. Looking at customer-first, this is about creating a frictionless customer experience. Here, we've made two significant enhancements to digitize the onboarding experience. making it easier for SMBs to ship with us. The first change I'll share is for our smallest customers. In the US, they can now go online at ups.com, answer just three questions, and get a contract that includes pricing. This enables them to begin shipping in under two minutes, instead of our old process where they had to wait an average of 10 days to get started. The second enhancement is for larger SMBs. Here, we are leveraging best-in-class technology to enhance the experience for our customers and our salespeople. We've moved from a slow, manual pricing process to a new digital platform that we call Deal Manager. This platform, which will be fully deployed to all U.S. SMB salespeople by the end of this month, operationalizes our data, and applies pricing science to present the customer with the right price the first time. For our customers, this means they no longer need to submit cumbersome sample data just to get a quote. For our salespeople, they can close deals on the spot, making them more efficient and freeing them up to spend more time selling. And because this platform uses advanced analytics, the more we use it, the smarter it becomes. It's a key building block toward dynamic pricing. Our digital access program, or DAP, is another important SMB growth driver. In the first quarter, we created more than 500,000 new DAP customer accounts. That's more than three times the number of new accounts created in the first quarter of last year. What's more, near the end of the first quarter, we began shipping DAP packages that originated outside of the U.S. As of today, DAP is available in 27 countries around the world, and we are continuing to add DAP partners, putting this well on our way to achieving our $2 billion DAP revenue target in 2022. The enhancements we are making are resonating with SMB customers. In the first quarter, the US SMB average daily volume growth rate, including platforms, outpaced the enterprise volume growth rate. In fact, in the first quarter, SMBs made up 28.4% of our total U.S. volume, up 140 basis points from one year ago. Looking at our international and supply chain solution segments, the flexibility of our network allowed us to continue delivering for our customers within a dynamic environment. In many ways, this was one of our more challenging quarters. as our international small package business faced tough year-over-year comparisons, and demand was negatively impacted by ongoing disruptions due to the pandemic. But at the same time, we scurried to keep up with heightened demand in our forwarding and healthcare businesses. No matter what came our way, we kept delivering with outstanding service levels. Moving to PeopleLed, as previously announced, In the quarter, we realigned our executive leadership team. First, Nando Cesarone, who has been leading our U.S. operations since 2020, assumed additional responsibility for U.S. sales and parts of engineering. This change gets us even closer to the customer, helping us better go to market as one UPS and enabling our teams to move even faster to unlock value for our customers and our shareholders. Second, Kate Gutmann assumed a new role leading both the international and supply chain solution segments in addition to our healthcare business. This allows us to better serve our global customers with our full range of services and provides opportunity for synergies in both revenue and cost. Finally, we have an external search underway for our new Chief Digital and Technology Officer. I'm delighted with the candidates that have surfaced for this role. and hope to fill the position soon. Which brings us to innovation driven. This is about driving higher returns from the capital we deploy. Here we are continuing to leverage the technology investments we've made to power our global smart logistics network. Throughout the quarter, we leveraged our network planning tools, automated facilities, and other technologies to optimize the network and run it with greater agility. These efforts coupled with a laser focus on revenue quality, contributed to a 90 basis point improvement in U.S. operating margin year over year. As we've discussed, we've turned productivity into a virtuous cycle at UPS. We have started the rollout of our RFID technology that we call Smart Package with the intent of completing 100 centers in 2022. This year, we will also begin the implementation of automated bagging, automated label application, and robotic small sort induction, all this to drive increased productivity. As an innovation-driven company, we are marching down the path toward our goal of being carbon neutral by 2050. Here is one example. We have two data centers that drive our global integrated network. These data centers are now powered 100% by renewable energy sources. To give you some context, the power used to run these two data centers is the equivalent of the electricity needed to run 5,000 homes for one year. As we look ahead, we think the macro environment will be very dynamic, but we see many positives inside our business. We continue to deliver high service levels. We are gaining market share. We are more agile today than when I onboarded, and we are focused on controlling what we can control. to achieve the financial targets we've laid out. Brian will share the details regarding our outlook, but let me end by reaffirming our 2022 consolidated financial goals. In 2022, we expect to generate about $102 billion in revenue, consolidated operating margin of approximately 13.7%, and we expect return on invested capital to be greater than 30%. We are confident in our outlook and our financial condition. As a result, we are increasing our share repurchases for 2022, taking the target up to $2 billion for the year. And now I'll turn the call over to Brian.