United Parcel Service, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Business Climate: The U.S. economy showed resilience, but the small package market was impacted by low consumer sentiment. International trade was affected by trade policies, with the China to U.S. trade lane seeing a significant volume decline while China to rest of the world lanes grew.
• Strategic Actions: Accelerating Amazon volume glide down, with 74 buildings closed so far this year. Transitioning the Ground Saver product, with volume down 23% year-over-year. Efficiency Reimagined initiatives launched, redesigning processes to drive savings. Announced a voluntary separation program for full-time U.S. drivers.
• Healthcare Logistics: A key growth driver, leading in radio-pharma logistics and CEIV certified cold chain cross-dock building. Growing organically and through acquisitions like Andlauer Healthcare Group.

Segment Performance

• U.S. Domestic: Generated revenue of $14.1 billion, down slightly year-over-year. Total average daily volume decreased 7.3% primarily due to Amazon volume glide down and revenue quality efforts. Ground Saver average daily volume declined 23.3%. Revenue per piece increased 5.5%. Operating profit was $982 million with an operating margin of 7%.
• International: Total average daily volume increased 3.9%. Revenue was $4.5 billion, up 2.6% year-over-year. Operating profit was $682 million, down $142 million year-over-year, impacted by the decline in the China to U.S. trade lane.
• Supply Chain Solutions: Revenue was $2.7 billion, down $594 million year-over-year. Healthcare logistics grew 5.7%, and UPS Digital (including Roadie and Happy Returns) grew 26.4%. Operating profit was $212 million with an operating margin of 8%.

Guidance

• No forward-looking revenue or earnings guidance due to uncertainties in trade policies, consumer behavior, and lack of peak plans.
• Expect to remove approximately $3.5 billion in expense from the base business. Capital expenditures are expected to be approximately $3.5 billion. Plan to pay out around $5.5 billion in dividends (subject to Board approval) and expect the tax rate to be approximately 23.5% for the full year 2025.

Risks

• Uncertainty in trade policies impacting global trade and demand.
• Higher-than-expected attrition rates and delivery expenses related to Ground Saver.
• Uncertainty around the timing and impact of the driver voluntary separation program.

Question and Answer

Q: Is the lack of guidance a sign things are worse or purely due to uncertainty? And progress on domestic margins?

A: Lack of guidance is due to wide uncertainty in tariffs, peak, and costs. Progress on cost cuts is being made, but issues with attrition and Ground Saver delivery expenses exist.

Q: When will China to U.S. parcel lane shifts be fully lapped on costs? And infrastructure in Southeast Asia?

A: UPS is capturing growth in rest of world lanes through an agile network. Investments in Asia infrastructure, like expanding air hubs in Hong Kong and Philippines, are capitalizing on shifting trade lines.

Q: Thoughts on SMB results?

A: SMBs are challenged by trade uncertainty, but UPS's capabilities, digital platform, and supply chain mapping help. Healthcare SMBs benefit from differentiated lab packing service.

Q: International package margins trend and outlook?

A: Frictional costs from air network adjustments in the second quarter, but expected to improve with more certainty on tariffs and peak plans.

Q: Progress on Amazon glide down?

A: Glide down is proceeding mostly as planned, but attrition rate was higher than expected. Volume decline pace is expected to accelerate in the second half.

Q: Facility closures and automation?

A: Evaluating additional closures, 64% of volume went through automated facilities in the second quarter, driving efficiency and preparing for peak.

Q: Peak season uncertainty?

A: Waiting for peak plans from customers, but UPS's network agility prepares for any volume scenario due to strategic pivots.

Q: Ground Saver and Amazon glide down?

A: Amazon glide down volume is on target, but Ground Saver delivery expense was higher than expected. Working on solutions with USPS and operational changes.

Q: Employee buyouts and efficiency reimagined?

A: Driver buyouts are part of the $3.5 billion cost savings plan. Efficiency Reimagined is ramping, expected to carry through 2026 as Amazon volume declines.