United Parcel Service, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Tariffs and Network: Carol Tomé noted the third quarter had tariff changes, and UPS navigated complexities. Network reconfiguration continued, with 93 buildings closed year-to-date.
• Financial Results: Consolidated revenue $21.4 billion, operating profit $2.1 billion, margin 10%. Year-to-date free cash flow $2.7 billion. U.S. revenue per piece grew 9.8%.
• Strategic Initiatives: Progress on Andlauer acquisition (expected to close in early November), DAP revenue growth (over $2.8 billion in first 9 months, expected over $3.5 billion full year). Ground Saver working with USPS on last-mile delivery.
• Peak Season: Positive outlook due to Network of the Future efficiency, automation deployments, and guidance from top customers.

Segment Performance

• U.S. Domestic: In the third quarter, U.S. Domestic generated revenue of $14.2 billion, down 2.6% year-over-year against an ADV decline of 12.3% due to the glide down of Amazon volume and focus on revenue quality. Total air average daily volume down 13.9% (mainly due to Amazon), Ground average daily volume down 12% year-over-year. Ground Saver ADV declined 32.7% primarily due to Amazon and lower-yielding e-commerce volume. U.S. domestic operating margin was 6.4% with operating profit of $905 million.
• International: International revenue was $4.7 billion, up 5.9% from last year. Total international ADV increased 4.8%, led by Europe and the Americas regions. Export ADV increased 5.9%. Operating profit in the International segment was $691 million, down $101 million year-over-year, with an operating margin of 14.8%.
• Supply Chain Solutions: Revenue was $2.5 billion, lower than last year by $715 million. Logistics revenue down due to Mail Innovation decline, partially offset by Healthcare Logistics growth. UPS Digital grew revenue by 9.5% year-over-year. Operating profit was $536 million, margin 21.3%.

Guidance

• Consolidated: Fourth quarter consolidated revenue expected approximately $24 billion, operating margin approximately 11% to 11.5%.
• Segments:
  • U.S. Domestic: Fourth quarter revenue around $16.2 billion, operating margin approximately 9.5% to 10%.
  • International: Fourth quarter revenue approximately $5 billion, operating margin between 17% and 18%.
  • Supply Chain Solutions: Fourth quarter revenue around $2.7 billion, operating margin approximately 9%.
• Full-Year: Capital expenditures approximately $3.5 billion, dividends around $5.5 billion (subject to Board approval), targeted share repurchase of about $1 billion, tax rate approximately 23.75%.

Risks

• Tariff Uncertainties: Complex tariff changes and trade policy shifts pose challenges.
• SMB Impact: De minimis exemption elimination has affected SMBs, with some struggling to navigate changes.
• Government Shutdowns: Potential disruptions from government shutdowns on operations and volume.
• Ground Saver Challenges: Density issues and residential delivery costs remain a concern for Ground Saver.

Question and Answer

Q: On domestic margins and 2026 outlook A: Brian Dykes discussed Amazon glide down timeline, Ground Saver impact, and Andlauer acquisition, noting 2026 update in January and strategic actions for margin growth.

Q: On cost per piece exit rate and USPS collaboration A: Brian Dykes talked about cost per piece improvements from automation and driver separation, while Carol Tomé mentioned preliminary USPS agreement for last-mile delivery.

Q: On SMB performance and international trade A: Carol Tomé discussed SMB performance relative to market, trade webinar efforts, and international trade lane shifts affecting volume.

Q: On free cash flow sustainability A: Brian Dykes highlighted free cash flow expectations driven by revenue mix growth and cost-out efforts.

Q: On Amazon glide down and cost takeout A: Brian Dykes and Carol Tomé detailed Amazon glide down progress, cost reduction savings from building closures and position eliminations.

Q: On international trade flow and margin A: Brian Dykes and Carol Tomé discussed international trade flow changes and the target for maintaining mid- to high-teens margin in international.

Q: On government shutdown impact A: Carol Tomé stated no significant impact factored into guidance as peak outlook remains positive from customer forecasts.

Q: On USPS density and rev per piece A: Carol Tomé and Brian Dykes addressed Ground Saver density challenges and rev per piece expectations, with base rate growth and holiday surcharges contributing.

Q: On headcount and union contract A: Brian Dykes explained headcount management under the union contract, focusing on career pathing for part-time to full-time employees.

Q: On add-backs in U.S. domestic A: Brian Dykes discussed non-GAAP adjustments related to driver voluntary separation program costs within the network reconfiguration efforts.

Q: On network reconfiguration into 2026 A: Carol Tomé mentioned ongoing Amazon glide down and future network consolidation as part of the 6-quarter drawdown plan.