United Parcel Service, Inc.

Good morning. My name is Greg Alexander, and I will be your facilitator today. I would like to welcome everyone to the UPS third quarter 2024 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 want to ask a question, now is the time to press 1 and 0 on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. P.J. Guido, Investor Relations Officer. Sir, the floor is yours.

Good morning, and welcome to the UPS third quarter 2024 earnings call. Joining me today are Carol Tomei, our CEO, Brian Dykes, 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 2023 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 today refers to non-GAAP adjusted results. For the third quarter of 2024, GAAP results include an after-tax net gain of $36 million, or 4 cents per diluted share. comprised of a $152 million gain from the divestiture of our Coyote Logistics business, net of transformation strategy costs of $116 million. Transformation strategy costs consisted of after-tax costs of $81 million related to our Fit to Serve program and $35 million related to our Transformation 2.0 program. Additional detail on our transformation costs and initiatives as well as a reconciliation of non-GAAP adjusted amounts to GAAP financial results, is available in today's webcast materials. These materials will also be 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, PJ, and good morning. On our last earnings call, we said that the second quarter would not only be the bottom, but a turning point for our performance, and that we would return to revenue and profit growth in the third quarter, which we did. I would like to recognize and thank UPSers for their hard work and efforts. Their relentless focus on driving productivity while ensuring excellent customer service allowed us to deliver these results. In the third quarter, we faced a macro environment that was slightly worse than we expected. In the U.S., online sales slowed and manufacturing activity was lower than we anticipated. This slowdown in manufacturing activity was also true outside of the U.S. as we continue to see lower industrial production weigh on volume in certain geographies. But the macro environment didn't prevent us from growing revenue and profit, as we leaned into the parts of the market that value our end-to-end network, and we drove expense leverage through ongoing productivity initiatives. In the third quarter, our consolidated revenue was $22.2 billion, an increase of 5.6% versus last year. Consolidated operating profit was $2 billion, up 22.8% from last year, and consolidated operating margin was 8.9%. In the U.S., this was the second consecutive quarter of average daily volume growth. and it was our highest year-over-year ADV growth rate since the first quarter of 2021. In international, average daily volume growth finished flattish and continued the upward momentum we've seen since the first quarter of this year. And in SES, air and ocean forwarding contributed to strong revenue growth. Looking at the U.S., During the quarter, we focused on growing certain pockets of commercial business and grew B2B volume by nearly 1% compared to last year. One of the areas of commercial focus was retail B2B. Our B2B roots are in retail. In fact, we deliver merchandise to over 20,000 retail outlets across the country. To serve these customers, we offer a store replenishment with delivery window solution that provides retailers daily inventory replenishment within a two-hour window. Within this solution, we also provide visibility to the number of packages scheduled to be delivered. Our store replenishment solution, along with our RFID technology, enables retailers to reduce stockouts and more efficiently run their receiving operations. This is just one example of how our customer focused capabilities are enabling us to win new commercial volume. Now that U.S. volume is flowing back into our network, we have heightened our attention to revenue quality with a focus on the segments of the market we want to serve. You will recall that in the second quarter, we saw an unexpected surge of short-zone, lightweight e-commerce packages flow into our network. In the third quarter, we responded strategically, adjusting our pricing and optimizing our operating plans on a portion of this business. Further, we increased our focus on matching our pricing to the quality and attributes of the service we provide. We did this by leveraging the power of pricing science through our pricing architecture of tomorrow, or AOT technology. Our revenue per piece growth rate improved in the third quarter from what we reported in the second quarter, and we expect this trend to continue. On the cost side, our team did an excellent job of managing expenses across the board. As it relates to our two major cost-out initiatives, we are continuing to deliver solid results. Fit to Serve, which was designed to optimize and right-size our management structure, is slightly ahead of forecast. And with Network of the Future, so far this year, we've completed 45 operational closures, including nine full buildings that have been shut down. I'd like to give you a brief update on our customer-first, people-led, innovation-driven strategy, starting with customer-first. As we discussed, we have a goal to become the number one complex healthcare logistics provider in the world. To that end, we said we would pursue certain inorganic opportunities, and we have. Last month, we entered into an agreement to acquire Frigotrans, a move that will enhance our end-to-end temperature-sensitive healthcare capabilities across Europe. Today, 80% of pharmaceuticals in Europe require temperature-controlled transportation. Frigo Trans offers pan-European cold chain transportation, as well as temperature-controlled and time-critical freight forwarding capabilities. Plus, Frigo Trans has temperature-controlled warehousing capabilities with every temperature, from cryopreservation, which is minus 196 degrees Celsius, to ambience. which is about 25 degrees Celsius. We are targeting to close the Frigo Trans acquisition in the first quarter of next year. Complex healthcare logistics is a growing business for us, and we're continuing to invest in the capabilities needed to accelerate growth. We have dedicated healthcare facilities in 36 countries and provide specialized handling and visibility to our customers through our UPS Premier product. In the third quarter, we generated $2.5 billion in consolidated healthcare revenue, which contributed to revenue growth across all three segments. Shifting to international, in time for the holidays, we've made several enhancements. In September, we expanded residential Saturday delivery to the eight largest markets in Europe without an additional charge. This enhancement meets our customers' need for speed, and we now provide a superior service offering. Further, we sped up deliveries to over 35 countries across Asia, Africa, and the Middle East. And to meet the expected demand for this year's peak holiday season, we added over 200 flights connecting Asia to Europe and the U.S. Quickly touching on DAP, our digital access program, DAP continues to deliver strong SMB growth in both B2B and B2C segments. In the first nine months of this year, we generated $2.3 billion in global DAP revenue, and we expect to deliver over $3 billion in DAP revenue for the full year. As you know, we have been onboarding our new air cargo business with the United States Postal Service. During the third quarter, Our network planning teams worked closely with the USPS to ensure the transition progressed smoothly, and it did. As of October 1st, all contracted USPS air cargo business has been fully onboarded, and we expect this business to deliver strong, consistent revenue at an attractive margin. Moving to people-led, since our founding, we've had a culture of driving safe work practices. And by using new technology and tools, we've seen a dramatic improvement in the number of injuries and accidents. For example, in the U.S., this year we've had our best auto safety results in 10 years. The advances in safety were achieved through innovative driver education and training, like our Intergrad Driver Training Schools. This focus on safety enables driver achievements like our Circle of Honor, which recognizes drivers with 25 years or more of driving without an accident. Today, our Circle of Honor has grown to nearly 10,000 drivers. Now let's turn to innovation driven, which for this call is all about the peak holiday season. This year's holiday season has only 17 shipping days between Black Friday and Christmas Eve. We haven't seen such a compressed peak since 2019. We do peak better than anyone, and with six years in a row of industry-leading service, we're confident our plans and execution will make that seven. To prepare, we've been collaborating with our customers on daily volume expectations and the timing of their promotions. while our customers are still expecting a good holiday selling season. Recently, shippers have tempered their volume expectations. In any case, we'll be ready to deliver and we'll leverage our network planning tools and other proven technologies to control first how the volume comes in, second, how to flow more volume to our automated facilities, and third, how to adjust the network to operate as efficiently as possible. And talking about efficiency, this year on our peak day, which is December 18th, in the U.S., we expect to deliver 2 million more packages than we did on peak day last year, but we'll do it at a higher productivity rate. This will be possible due to the efficiency improvements we've made over the years and the use of seasonal support drivers, many of which are experienced part-time UPSers who work inside our facilities. To sum it up, we're ready to deliver another successful peak. Moving to our financial outlook, we continue our better-not-bigger approach enhanced by some bold moves. The addition of the USPS air cargo business and the divestiture of Coyote are recent examples. With these moves, we eliminated a highly volatile truckload brokerage business and added air cargo volume that is predictable and margin positive. Looking at our consolidated revenue outlook, in the third quarter we increased our emphasis on revenue quality, resulting in a glide down of certain volume, which we expect will continue into the fourth quarter. Given our third quarter results, our latest peak volume expectations and adjusting for the impact of the Coyote disposition, We now expect consolidated revenue of approximately $91.1 billion for the year, and are lifting our consolidated operating margin target to approximately 9.6%. Brian will provide more details. So with that, thank you for listening. And now I'll turn the call over to Brian.