United Parcel Service, Inc.

Good morning. My name is Steven, and I will be your facilitator today. I would like to welcome everyone to the UPS Investor Relations second 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 1 then 0 on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. Ken Cook, Investor Relations Officer. Sir, the floor is yours.

Good morning, and welcome to the UPS second 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 law's 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, our first quarter 2022 Form 10-Q, 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 second quarter of 2022, GAAP results include after-tax transformation and other charges of $31 million, or four cents per diluted share. A reconciliation to GAAP financial results is available on the UPS Investor Relations website, along with the webcast of today's call. 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. Let me begin by recognizing our more than 500,000 UPSers around the world for their dedication, hard work, and effort. Our founder, Jim Casey, said, we do what we promise. And in the second quarter, our UPSers did just that. They not only met, they exceeded our promises to our customers, our shareholders, and each other. In the second quarter, the macro environment remained dynamic. We expected volume levels to decline from last year. They did, but more than we planned, given a number of factors that Brian will detail. Despite the decline in volume, we continue to win in the most attractive parts of the market with strong gains in revenue quality. Under our Better Not Bigger strategy, our actions are creating a more resilient UPS. We are delivering better service for our customers and stronger financial results for our shareholders. For the second quarter, consolidated revenue rose 5.7% from last year to $24.8 billion, and operating profit grew 9.3% to $3.6 billion. Consolidated operating margin expanded to 14.4%, a 40 basis point improvement from last year, and it was our highest quarterly consolidated operating margin in nearly 15 years. All business segments delivered operating profit growth. And I'd like to give a shout out to our supply chain solutions businesses, which delivered operating profit of $517 million, a record high performance. Moving to our strategic update, our customer-first, people-led, innovation-driven strategy is powering consistent improvement across our company. Starting with customer-first, which is about creating a frictionless customer experience, We are growing in the parts of the market where we want to grow, like SMBs, healthcare, B2B, and certain large enterprise accounts. How are we doing that? By providing outstanding service and focusing on the capabilities that matter the most to our customers. Let me share a few new highlights with you, starting with our recent acquisition of Delivery Solutions. This is a carrier-agnostic digital platform that enables companies to easily optimize their deliveries across dozens of physical networks through a single connection. Carriers include roading and other same-day services, along with curbside pickup and small package shipping, further adding to UPS's array of digital commerce solutions for our customers. Next, we are continuing to win with SMBs by making it easier for them to ship with us. Our new digital pricing platform called Deal Manager that we discussed last quarter simplifies and accelerates the pricing process for larger SMB customers and is performing better than we expected. Our win rate is 12 percentage points higher than we anticipated, which helped drive our U.S. SMB growth rate in the second quarter. Later this year, Deal Manager will be rolled out to our international small package business starting with Canada and Germany. Additionally, DAP, our digital access program, is continuing to grow in the U.S. and internationally. In the first six months of this year, DAP generated more than $1 billion in revenue, putting us well on our way to achieving our $2 billion revenue target in 2022. And looking at SMB, In the US in the second quarter, we grew SMB average daily volume, including platforms, by 3.3%, which was faster than the market. SMBs made up 29.2% of our total US volume in the quarter, an increase of 200 basis points from one year ago. While our international volume levels were challenged in the second quarter due to the ongoing war in Eastern Europe and COVID-19 lockdowns in Asia, That didn't stop us from investing in our business. We recently launched a new daily flight from our Cologne air hub that connects key manufacturing cities in Asia. This flight speeds up transit times across multiple intra Asia trade lines and provides greater connectivity to the UPS global network, including to the US and Europe. And speaking of Europe, did you know that UPS has the fastest ground network in Europe? In fact, we are faster by at least one day on the ground in over one-third of the market, and we will continue to leverage our competitive advantage here to win on speed and service. Our international expansion didn't stop in the air. In the second quarter, we announced a new joint venture in India, which we call MUVIN. MUVIN offers a range of extensive express and premium service coverage across India, with a strong portfolio of B2B domestic services. Moving to healthcare, we've expanded UPS Premier, our advanced technology solution. UPS Premier gives complex healthcare shipments a priority lane in our network with enhanced visibility and near perfect service. So far this year, we've added 14 new countries to UPS Premier, bringing the total availability to 33 countries. And by the end of this year, we will add another 15 countries in Europe, Asia, and Latin America. These efforts and more are keeping us on track to hit our $10 billion healthcare revenue target in 2023. Moving to people-led, I'm delighted that Bala Subramanian has joined the company as UPS's new Chief Digital and Technology Officer. He is tasked with supercharging digital transformation across every aspect of our business and will unleash even more innovation for our customers. We are moving from digital literacy to digital fluency. And to help us get there, we are investing in our people and have created training to equip them with new skills. The entire executive leadership team, including me, has completed this digital fluency training. And we are moving quickly to train our next two levels of leadership. Which brings me to innovation driven. This is about the future of UPS and driving more productivity from the assets we own. The changes we've already made have significantly increased the agility of our network and are driving productivity improvements. In the second quarter in the United States, we were able to manage hours in line with volume levels. And we optimize our trailer loads by eliminating 1,600 loads per day compared to the same timeframe last year. And we will continue to deploy additional technology prior to peak. To give you a couple of examples, we are on track with our deployment of smart package, smart facility to the first 100 buildings in our network. And prior to peak this year, we will bring two automated facilities online. including the first two phases of our new 800,000 square foot regional hub in Harrisburg, Pennsylvania. Additionally, on July 11th, we launched our total service plan across the US network. Brian will share the details, but our total service plan approach creates a more predictable operating environment, enabling us to take more costs out and make our industry leading service even better. We are also working on another big efficiency opportunity, and that's how to improve delivery density. We are approaching this differently by attacking density upstream in fulfillment. We recently completed two pilots, and we're really excited about the results. We are building a new digital platform that can scale, and we look forward to sharing more detail with you in the coming quarters. Innovation Driven will also help us reach carbon neutrality by 2050. On Thursday of this week, we will publish our set of annual sustainability reports, which includes our 20th GRI Content Index. In these reports, we share some new technologies that we are using, like the eQuAD electric assist bikes we are piloting in New York and London. These eQuADs are a great zero-emission, last-mile solution for super urban environments. Before I turn it over to Brian, let me end by reaffirming our 2022 consolidated financial targets. 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%. Lastly, we are again increasing our targeted share repurchases for 2022, taking the target up to $3 billion for the year. In the face of a very dynamic macro environment, we remain agile and on strategy. We have multiple revenue and cost levers to pull, and we remain focused on controlling what we can control. And now I'll turn the call over to Brian.