United Parcel Service, Inc.

Good morning. My name is Matthew, and I will be your facilitator today. I'd like to welcome everyone to the UPS First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent 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 star then one 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 first quarter 2026 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 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 2025 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. For the first quarter of 2026, GAAP results include after-tax transformation charges of $42 million or 5 cents per diluted share. A reconciliation of non-GAAP adjusted amounts to GAAP financial results is available in today's webcast materials. These materials are also 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 star and then 1 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 start by saying how incredibly proud I am of UPSers around the world. This past quarter brought significant external challenges. from volatile global markets to rising fuel costs. Even so, our team stayed focused, pushed our transformation forward, and upheld the exceptional service our customers rely on. The first quarter of 2026 marked a critical transition period for our company, one in which we needed to flawlessly execute several major strategic actions. And we delivered. First, we further reduced non-nutritive Amazon volume by an average of 500,000 pieces per day and closed 23 additional buildings. Second, under our new agreement, we shifted a portion of our ground saver volume back to the USPS for last mile delivery. Third, we launched a voluntary driver buyout program we called Driver Choice. through which we will reduce roughly 7,500 full-time driver positions. Interest in the program was extremely strong and ultimately exceeded our expectations. Based on these actions and more, we are firmly on track to achieve our $3 billion cost-out target for the year. Further, we began scaling back leased aircraft as we retired our MD-11 fleet and took delivery of new 767s, and we continued to capitalize on trade lane shifts resulting from last year's trade policy changes. It's a dynamic environment, but even against that backdrop, our underlying business performed exceptionally well. In the first quarter, consolidated revenue reached $21.2 billion, with consolidated operating profit of $1.3 billion and an operating margin of 6.2%. Across our segments, performance was strong. In the U.S., revenue quality remained high, with revenue per piece up 6.5% compared to the same period last year. Our international business delivered solid top-line momentum growing revenue by $167 million, or 3.8% year over year. And our supply chain solutions businesses more than doubled operating profit versus last year. Our results were considerably better than our financial plan and targets, but it's worthwhile calling out that while we planned for it, our first quarter performance deviated from seasonal norms. due to certain cost pressures that Brian will detail. These pressures are largely behind us. We expect to return to consolidated revenue and operating profit growth and expand operating margin in the second quarter of this year. Last year, we launched the most extensive U.S. network reconfiguration in our company history by targeting a 50% reduction in the volume we deliver for Amazon by June of 2026. with roughly two months to go, we are comfortably in the home stretch of this initiative. Our actions are moving us toward a more profitable U.S. small package business with the back half of 2026 expected to be the inflection point. With that as context, let me outline our priorities and how we intend to deliver revenue growth and margin improvement going forward. Our number one priority is to move the right packages and the right mix of volume through our network. The market has changed, and we're adapting to it. We're overturning the old industry assumption that scale alone drives profitability. Instead, we're focused on premium segments like SMB, B2B, and complex healthcare. Our strategy is working. We're seeing favorable mix improvements with SMB and B2B volume representing a larger share of total U.S. volume, and premium customer wins are driving meaningful revenue per piece growth. How are we winning? We're winning through innovative and differentiated capabilities like RFID labeling at customer locations, end-to-end cold chain solutions, ROTI for same day and big and bulky deliveries, happy returns for boxless, label-less returns, and much more. And that's only a part of our growth story, because we're also doing a better job retaining and growing our existing customers. In the U.S., we saw a meaningful reduction in churn through the first quarter. Our customer-first strategy focuses on what matters most, and that's speed, ease, and reliability. And while we're discussing capabilities, let me highlight DAP, our digital access program. DAP gives us access to over 8 million SMBs. And in the first quarter, we generated $1.2 billion in global DAP revenue, marking the second quarter in a row of delivering DAP revenue over $1 billion. As we drive revenue growth, we'll also drive profit growth, with margin improvement coming from higher productivity. We already run the industry's most efficient integrated network, and with expanded automation and robotic deployments, we will make the network even more productive and adaptable. That added agility will create the strategic capacity we need to fuel premium volume growth over the long term. Growing premium volume is not just a U.S. strategy. It's a global strategy. In international, we're speeding up our ground network in Europe to win premium commercial volume. And in Asia, we recently opened a major expansion of our Incheon Airport hub in South Korea. And in Taiwan, we opened our largest and most advanced logistics center in the region. We're speeding up our services across Asia Pacific, as well as to and from Europe, further enabling global supply chains, particularly in the manufacturing, high-tech, and healthcare sectors, all premium sectors. Speaking of healthcare, it remains a top priority growth engine for UPS. We've built a world-class, end-to-end logistics network to handle the most complex time and temperature sensitive healthcare products. And these capabilities are enabling us to win. In fact, our global healthcare portfolio has gained market share every year since 2021. And in the first quarter of this year, we generated our first $3 billion healthcare revenue quarter ever. with all three of our segments delivering year-over-year revenue growth. As I wrap up, we've now had three-quarters in a row of performance exceeding our expectations. As we look to the balance of the year, there are a few external factors that we are watching that could impact demand, especially higher fuel costs stemming from the conflict in the Middle East and U.S. consumer confidence, which is at historic lows. But these external pressures won't deter us As we reach the finish line on our Amazon glide down and complete our network reconfiguration, costs will continue to come out, premium volume will continue to strengthen, and we will return to revenue and profit growth with higher operating margins and stronger returns on invested capital. Today, we are reaffirming 2026 consolidated financial goals. For the year, we expect to generate consolidated revenue of approximately $89.7 billion and a consolidated operating margin of approximately 9.6%. So with that, thank you for listening. And now I'll turn the call over to Brian.