UNITED PARCEL SERVICE INC Q4 FY2024 earnings call

Reporting Change: Effective with the fourth quarter of 2024, USPS Air Cargo results were moved from supply chain solutions to the U.S. domestic segment. ### Q4 2024 GAAP Details: Included a non-cash after-tax mark-to-market pension charge of $506 million, etc. ### Operational Highlights: - SMB penetration in the U.S. finished 2024 at 28.9%, up 30 basis points from the prior year. - DAP global revenue was $3.3 billion in 2024, a 17% increase year-over-year. - Equipped nearly 60,000 U.S. package cars with sensors, eliminating 12 million manual scans per day. - Accelerated network closures, completing 49 operational closures including 11 permanently closed buildings. - Acquired Frigo-Trans, a European healthcare logistics company, and opened healthcare cross-dock facilities in Italy and Germany. ### 2025 Plans: - Agreed to reduce largest customer's volume by over 50% by the second half of 2026. - Insourced SurePost product effective January 1, 2025. - Launched Efficiency Reimagined initiative to drive ~$1 billion in savings by redesigning processes end-to-end.

U.S. Domestic: In the fourth quarter of 2024, U.S. domestic generated revenue of $17.3 billion, up 2.2% compared to the previous year. Revenue per piece grew 2.4% year-over-year. SMBs made up 27.8% of total U.S. volume. International: International revenue was $4.9 billion, up 6.9% from the prior year. Operating profit in the international segment was $1.1 billion, an increase of 18.1% year-over-year, with an operating margin of 21.6%. Supply Chain Solutions: Revenue was $3.1 billion, a decrease of $306 million. Operating profit was $284 million, down $24 million year-over-year, with an operating margin of 9.3%.

2025 Outlook: - Consolidated revenue expected to be approximately $89 billion, with an operating margin of approximately 10.8%. - U.S. domestic: Revenue expected to decline 2.3% year-over-year, but operating margin expected to be approximately 8.8%. - International: Revenue expected to increase approximately 2.5% year-over-year, with an operating margin of around 18.6%. - Supply Chain Solutions: Revenue expected to be approximately $11 billion, with an operating margin of approximately 8.5%. - Free cash flow expected to be approximately $5.7 billion, CAPEX expected to be about $3.5 billion, dividends planned around $5.5 billion, and share buyback of around $1 billion.

• Dependence on a large customer (Amazon) and potential impact of USPS operating model changes on SurePost service. - Challenges associated with the largest network reconfiguration in UPS history, including potential disruption to service if not managed properly. - Market and economic uncertainties that could impact global trade and volume levels.

Q: Talk about building confidence against the significant drop in revenue from the Amazon change and the ability to quickly remove fixed costs.

A: Carol Tomé mentioned accelerating the glide down of Amazon's volume by more than 50% by the second half of 2026, and Brian Dykes stated that the network reconfiguration is already underway to align fixed assets with new volume levels, with more details to be shared on the first quarter earnings call.

Q: Give sense on SurePost volume insourcing and network readiness.

A: Carol Tomé said SurePost volume is now 100% insourced, with Nando Cesarone noting that technology allows for better matching of shipments and smoothing of dispatch, and Matt Guffey mentioned that SurePost is priced to align with service value.