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 third quarter 2023 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 analysts that would like to ask a question, now is the time to press the 1 then 0 on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. PJ Guido, Investor Relations Officer. Sir, the floor is yours.

Good morning, and welcome to the UPS Third Quarter 2023 Earnings Call. Joining me today are Carol Tomei, our CEO, Brian Newman, 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 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 2022 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. To the third quarter of 2023, DAP results include an after-tax charge of $219 million, or 26 cents per diluted share, comprised of a one-time payment of $46 million to certain U.S.-based non-union part-time supervisors. transformation and other charges of $70 million, and non-cash goodwill impairment charges of $103 million. 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, PJ, and good morning. Let me begin by thanking UPSers for their hard work and efforts. Our U.S. labor contract wasn't fully ratified until early September. And I'm proud of our UPSers for staying focused during the entire labor negotiation and for providing industry-leading service to our customers. We expected conditions in the third quarter to be challenging, and they were. The global macro environment remained weak, with some countries in recession, which pressured international and freight forwarding volume. And in the U.S., labor uncertainty negatively impacted volume for most of the quarter. From a demand perspective, August proved to be the most challenging, as some customers waited for the ratification of our Teamster contract before returning volume to our network. Since contract ratification, we've been gaining volume momentum. We exited the last week of September with U.S. average daily volume, or ADV, down 7.4%, a marked improvement from the rest of the quarter. our salespeople have produced record results from the combination of win-back and new customers. To date, we've won back roughly 600,000 ADV of diverted volume, and we are working to win back all diverted volume by the end of the year. And looking at our sales pipeline, we are pulling through new customers that value our superior on-time performance and want to come to UPS prior to the busy peak holiday season. Moving to our financial results, our third quarter performance, while down considerably from last year, was in line with our expectations and factored in both the timing of contract ratification and higher labor costs resulting from the new labor contract. Consolidated revenue in the third quarter was $21.1 billion, down 12.8% compared to last year. Operating profit was $1.6 billion. a decrease of 48.7% from last year, and consolidated operating margin was 7.7%. Brian will provide more details on our performance in a moment. With the third quarter behind us, we are laser-focused on restoring volume in our network and executing our strategy to deliver share owner value. So let me turn to our strategic update. Our customer-first, people-led, innovation-driven strategy is enabling us to stay focused on our core business and invest to grow in the most attractive parts of the market, like healthcare and with SMBs. Starting with customer first, under our better and bolder framework, we recently announced two acquisitions that will further drive growth in healthcare logistics and in end-to-end return solutions. One of our strategic objectives is to become the number one complex healthcare logistics provider in the world, and we are making bold moves to get us there. Last year's acquisition of BOMI and our recently announced pending acquisition of MNX Global Logistics are two examples of bold moves in healthcare. MNX is an industry leader in time-critical and temperature-sensitive logistics. tailor-made for the complex needs of global healthcare. By combining MNX with UPS Express Critical and our global integrated network, we will enhance the speed and reliability of our healthcare portfolio. With MNX, UPS will be able to reach new healthcare markets like in Asia and new customers like the radiopharmaceutical sector. To further support our healthcare strategy, This year, we've opened seven dedicated healthcare facilities in Europe and in the U.S. And the acquisition of BOMI further strengthened our healthcare footprint in Europe and Latin America. Since 2020, we have more than doubled our healthcare distribution space globally. These efforts and more are keeping us on track to reach our $10 billion healthcare revenue targets this year, and we're just getting started. Turning to returns. With the explosion of e-commerce demand, our returns business has been a key area of growth over the last several years. What we've seen over this time is an increasing desire on the part of both our customers and our recipients for a frictionless and simple end-to-end returns experience. We've been building out this experience, but to help us get there faster, we just entered into an agreement to acquire Happy Returns. a technology-focused company that enables frictionless, no-box, no-label returns. By combining happy returns, easy digital experience, and established drop-off points with UPS's small package network and footprint of close to 5,200 UPS store locations, box-free, label-free returns will soon be available at more than 12,000 convenient locations in the U.S. But our plans for returns don't stop at convenience. For our enterprise retail customers, we plan to provide a consolidated return solution that will lower their costs and improve their experience. And for UPS, Happy Returns expands our returns portfolio with an innovative solution that will generate profitable B2B volume and help drive pickup and delivery density. For us, customer first isn't just about growth. it's about meeting customer needs. To that end, we are continuing to improve the delivery experience with the expansion of UPS delivery photo. 92% of our residential stops globally include a photo that shows exactly where the package was delivered. Not only does delivery photo provide peace of mind to recipients, but we get fewer calls about missing packages. With delivery photo, UPS has seen a reduction in U.S. delivery-related support requests of more than 15 percent. We are also harnessing our data to deliver more agile and targeted products that meet our customers' needs. Our latest example is a new product we call Hyperlocal, which leverages the footprint of our U.S. facilities to provide select customers with a fast, next-day delivery option within a metro area. Hyperlocal enables us to capture new profitable B2C and B2B volume and was launched in October as a new service offering. Let me quickly touch on DAP, our digital access program. We are continuing to grow SMB volume with DAP. In the third quarter, we launched 10 new partners in time for peak. In the first nine months of this year, we generated $2.1 billion in DAP revenue and we expect to deliver $3 billion in DAP revenue for the year. Let's turn to innovation-driven. UPS has been a technology company since our founding, and we are adding transformative technology in our operations that will increase efficiency and improve the employee experience. Smart package, smart facility, our RFID solution is one way we're driving efficiency. And I'm pleased that we are wrapping up our phase one rollout in our U.S. facility. The improvements we are seeing in our preload operations are even better than we expected, with nearly 200 of our buildings seeing this load rate in one in 2,500 packages or better. Deployment of phase two is already underway, which equips our package cards with RFID readers. Over time, this will allow us to virtually scan smart packages during pickup and eliminate delivery scans during bulk delivery stops, both of which will enhance customer visibility and make our drivers more efficient. Another example of transformative technology is robotics. Specifically, starting a supply chain solution, we are implementing robotics unload technology inside our trailers to unload packages more efficiently. These robots navigate the inside of a trailer and can unload multiple box types and sizes autonomously. Now, it's still early days with this technology, but we are seeing many opportunities to further expand the use of robotics across our network. Turning to the fourth quarter, we are preparing for peak. Over the past five years, our service during peak has been better than our closest competitor by an average of 310 basis points. Service matters all the time, but especially at peak. So to prepare, we are collaborating with customers on volume projections and the timing of their promotion. We will also leverage technology, like our network planning tools, to control how the volume comes in, utilize available capacity, and adjust the network to operate as efficiently as possible. Regarding peak hiring, our people-led strategy enables greater flexibility to serve our customers during the holiday rush. For example, our experienced part-time employees can now become seasonal support drivers. This enables them to deliver packages using their own vehicles before or after their regular shift. In addition, we plan to hire over 100,000 seasonal employees to help process and deliver holiday volume. This year, we've made it even easier and faster to apply for a job. as we shortened the digital process to less than 20 minutes in filling out an online application to receiving a job offer. Regarding our financial outlook, we made changes based on what we are seeing in the market. We still expect to have healthy peak volume in the fourth quarter, but based on what appears to be slowing demand in all business segments, we are revising our guidance accordingly. Brian will share more detail in a moment. Back in January, I said that 2023 would be a year of resilience, and it has been. Our founder, Jim Casey, said, determined people working together can do anything. During the year, we accelerated the deployment of smart package, smart facility, and made strategic acquisitions to grow in the best parts of the market. We delivered a labor agreement that provides certainty for the next five years. We are operating with great speed and agility. controlling what we can control, and we are staying on strategy. With that, thank you for listening, and now I'll turn the call over to Brian.