Q1 2021 United Parcel Service Inc Earnings Call
Yeah.
[music].
Good morning, My name is Steven and I will be your conference facilitator today I would like to welcome everyone to the U P. S. Investor Relations first quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background.
Noise and after the Speakers' remarks, there will be a question and answer period. It is now my pleasure to turn the floor over to your host Mr. Scott Childress.
Investor Relations officer, Sir the floor is yours.
Good morning, and welcome to the U P. S first quarter 2021 earnings call. Joining me today are Carol to me, our CEO and Brian Newman, our CFO 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 expectation for the future performance or operating results of our company. These statements are subject to risk and uncertainty which are described in detail in our 2020 form 10-K, and other reports we file with the Securities and Exchange Commission. These reports when filed are available.
On the UBS Investor Relations website and from the SEC.
For the first quarter of 'twenty 'twenty. One GAAP results include a net benefit of $2 $4 billion or $2.70 per diluted share comprised of an after tax mark to market pension benefit of $2 5 billion and an after tax.
<unk> and other charges of $140 million.
The Mark to market pension benefit was primarily driven by the enactment of the American Rescue plan Act, the resulting elimination of our balance sheet liability related to the central States pension fund as well as the Remeasurement of the U P. S. I B T P.
<unk> plan at the current discount rate.
Together these reduced our pension liability by $6 $4 billion.
Unless stated otherwise our comments will refer to adjusted results, which exclude the mark to market pension benefit and transformation and other charges. The webcast of today's call along with the reconciliation of non-GAAP financial measures are available on the UBS Investor Relations web.
Site following our prepared remarks, we will take questions from those joining via the teleconference. If you wish to ask a question press. One then zero 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.
You for the opportunity to ask an additional question and now I'll turn the call over to Carol. Thank you Scott and good morning, everyone. We are now more than a year into the COVID-19, pandemic, which drove enormous change to how we all live and conduct business.
I want to thank our more than 540000 U P. S herz for continuing to deliver what matters and for serving our customers communities and each other.
Looking at the first quarter, our results exceeded our expectations driven by an improving macro environment and great execution by our team.
Consolidated revenue in the quarter rose, 27% from last year to $22 $9 billion and operating profit grew 164% to $2 $9 billion.
All of our business segments delivered strong performance in the first quarter we.
We reported record profit and a double digit operating margin in our U S domestic segment rec.
Record first quarter profit in our international segment.
And record operating profit and operating margin in supply chain and freight.
As shown in our results our team is advancing our customer first people led innovation driven strategy under the better not bigger framework.
As we've discussed customer first is about building capabilities that matter the most to our customers.
And using those capabilities to capture the best opportunities in the market like small and medium sized businesses and health care.
In the U S. The improvements we made last year and continue to make this year to speed up our ground network enhance our digital access program known as DAP and expand weekend operations.
These are taking hold and.
In fact during the first quarter, we added nearly 150000, new DAP accounts, and we are well on our way to hitting our $1 billion DAP revenue target by the end of this year.
Further in the U S. Total average daily volume growth for F N B's, including our platform businesses reached an all time high of 35, 6% outpacing the growth rate of our larger customers for the third consecutive quarter.
This mix improvement and certain other revenue quality actions are delivering results.
With U S domestic revenue per piece up 10, 2% in the first quarter.
Looking at our International segment, we were able to meet elevated customer demand by leveraging the agility of our network export volume grew double digits in all regions.
Commercial volume increased 10, 1%.
S M. B average daily volume was up 23% in the first quarter.
And we see even more opportunity moving ahead, as we expand DAP and other solutions to key international markets.
During the quarter, our supply chain and freight segment responded well to market demands.
We are on track to complete the divestiture of our U P. S freight business by the end of this month and.
And we look forward to our new commercial relationship with T F I.
Our focus on the customer includes improving the end to end experience in other words, improving the experience from the shipper to the receiver.
As both of our customers.
We've identified a number of customer journeys and candidly pain points that we are addressing.
Let me give you an example until recently pain a U P. S. Bill online was a poor customer experience. So.
So we replaced our old homegrown system with a new SaaS application, which we began deploying globally in the first quarter.
Once fully implemented our industry, leading billing solution will make it easy for nearly 2 million global customers to pay and manage UBS Bill.
This will be particularly helpful for our SMB customers.
Our customer first aspiration is to provide the best digital experience powered by our smart Global logistics network.
Simplified billing experience is one aspect of this aspiration.
Another is the digitization, that's occurring within our supply chain and freight segment.
We are moving from telephone based quotes to online quoting.
This new digital experience is driving simplification across the entire value chain.
We'll talk more about our efforts to improve our customers experiences during our June investor and analyst day.
We know that our customers place high value on the reliability of the EPS network.
That's why we led the market by reinstating our service guarantees for U S. Next day Air services and worldwide Express services for all origins and destinations we intend to be the carrier that shippers and receivers can count on for reliable delivery.
And as it relates to COVID-19 vaccine, our global expertise technology and network are enabling us to move vaccines kits and dry ice over great distances around the world.
As of last week, we have delivered more than 1.1 million shipments about 196 million vaccine doses to about 50 countries and territories.
And utilized our U P S Premier service to achieve 99, 9% on time delivery.
The combination of our efforts to remove friction in the customer experience provide the digital capabilities that matter, most and deliver industry, leading service levels are positioning us for future growth.
Further as we've discussed market demand is outpacing industry supply and we expect this dynamic to continue for the foreseeable future GDP forecasts are being revised higher economies are reopening and U S. Consumer spending is being boosted by government stimulus programs. This.
Demand supply imbalance creates an environment where pricing in the industry should remain firm.
Brian will cover more of our economic outlook in his remarks.
People that as an important part of our strategy.
Our success in the first quarter was due to the commitment of our people on the strength of our culture.
Every U P S or has a role to play in supporting our customers.
We've hired a lot of new Ups's.
So we know we need to focus unemployed safety and training.
In the U S. We have re imagined our driver safety program by truly taking it on the road.
We've created mobile units that can be rapidly deployed across the country.
These units provide classroom training and E learning lab within movable trailers.
Our mobile training along with other vehicle safety technologies are making a difference.
So far this year, we've improved auto accident frequency by two 1% globally.
And we will continue to advance our employee safety programs around the world moving.
Moving to innovation driven.
Over the past several years, we have invested in automation introduced new technology and opened new facilities. We are now starting to reap productivity benefits from these investments.
The additional flexibility we've gained in the network enables us to be more responsive to changes in demand and be more efficient in fact in the first quarter compared to last year productivity improved in nearly all major operating categories.
But we have more to do we.
We aim to make productivity a virtuous cycle not just a transformation project. We are laser focused on operational excellence and.
And we'll share more details about our efforts here during our conference.
Let me take a moment to touch on one of our five core principles, which is maintaining a strong balance sheet and credit rating.
We have made great strides in this area by reducing financial leverage and improving shareowners equity Brian will share the details on this in a moment.
Our strategy is gaining traction and we see even more opportunities ahead, we look forward to sharing the details with you at our upcoming Investor and analyst day.
And now I'll turn the call over to Brian.
Thanks, Carol and good morning, and my comments today I'll cover four areas starting with macroeconomic trends.
And then our first quarter results.
Next I'll review cash and Shareowner returns and lastly, I'll wrap up with some comments on our outlook on the new pension reform law.
Let's start with the macro and how it is projected to unfold.
Global GDP in the first quarter is expected to finish up three 5% in U S. GDP is expected to be up 0.2%.
Both have shown significant improvement over the fourth quarter of 2020.
Key economic indicators continue to support a strong recovery in 2021.
Forecast from moving higher based on three factors.
First is the progress with the global vaccine rollout.
Second is a low U S inventory to sales ratio, which ran between one four and one five for the three years prior to COVID-19.
And is currently down about 18% from historic averages at a time when a number of economies are starting to reopen.
And third is the passage of the most recent U S government stimulus. According to IHS for the full year Global GDP is now expected to grow five 3% in U S. GDP is expected to grow six 2%.
In the U S full year nominal retail sales are anticipated to grow 11, 7% and electronics sales and mail orders. The proxy we use for online sales are expected to be up 12, 7% following growth of 24, 7% in 2020 the outlook for the commercial side of the U S economy is.
Also encouraging.
Full year industrial production is forecasted to grow six 5% on a year over year basis. We view. These projections is favorable for our company and expect the imbalance between market demand and industry capacity to continue as Carol mentioned.
Moving to our first quarter performance consolidated revenue increased 27% to $22 9 billion.
Operating profit totaled $2 $9 billion, 164% higher than last year.
Consolidated operating margin expanded to 12, 9%, which is our best consolidated margin in 18 quarters and diluted earnings per share was up $2 77.
Up 141% from the same period last year.
Now, let's take a look at the segments.
In U S. Domestic our success was due to a combination of our revenue quality initiatives and the impact of our productivity efforts running the network average daily.
On the volume increased 12, 8% year over year to a total of $20 4 million packages per day.
Additionally mix continued to be positive.
M B volume growth, including platforms accelerated for the fourth consecutive quarter, reaching 35, 6% and accounted for 63% of our total average daily volume increase.
Both smbs and our larger customers grew residential shipments across air and ground products.
Overall, <unk> shipments increased 23, 8% year over year.
Conversely be to be average daily volume declined <unk> six.
6% year over year.
Health care on automotive remained bright spots and delivered mid single digit BTB growth yet they were unable to offset weakness in other commercial segments.
Total <unk> volume strength in late in the quarter with March turning positive.
For the quarter U S domestic generated revenue of $14 billion up 22, 3% driven by average daily volume growth and improvements in revenue per piece.
We were extremely pleased with our revenue quality efforts, which were driven by strong SMB average daily volume growth and demand related surcharges.
As a result of our actions reported revenue per piece grew 10, 2% year over year with ground revenue per piece up 12, 5%.
Turning to cost expenses were up 13, 5%.
Cost per piece rose two 2% driven primarily by two factors.
Our fastest ground ever and we can initiatives and planned benefit expense increases.
Nando and his team did an outstanding job transitioning the network from fourth quarter peak back into non peak operations. This enabled us to control unnecessary cost and make productivity improvements across the network and building on carol's comments about reducing accident frequency our efforts to prevent incidents.
Additional safety training technology, and analytics enabled lower than expected casualty self insurance costs in the first quarter.
Most notably in the quarter revenue growth was significantly above expense growth, which generated positive operating leverage.
So in summary.
The U S domestic segment delivered $1 $5 billion on operating profit an increase of $1 1 billion or 265% compared to last year.
Operating margin expanded to 10, 4%.
Moving over to international the results were excellent and our performance demonstrates the flexibility of our network to match global air capacity with demand.
Volume growth was very strong with total average daily volume up 23, 1%.
We saw growth across customer segments with both larger customers and SMB is growing over 20%.
To support outbound Asia demand, we added 25% more flights and even more in terms of capacity because of our 747 dash eight capabilities.
Asia export volume was up 43%.
Europe exports were up 27, 7% and overall total exports grew 26, 2% on a year over year basis.
B to C average daily volume grew 77, 6%, while <unk> was up 10, 1% driven by the retail high Tech and automotive sectors for the quarter International revenue was up 36, 2% to $4 6 billion with all regions growing revenue over.
20% we.
We generated strong operating leverage in the quarter with revenue per piece up 12, 3% and cost per piece up two 7% year over year.
For the first quarter International delivered operating profit of $1 1 billion.
An increase of 95, 5%.
And operating margin expanded to 23, 7% looking.
Looking at supply chain and freight revenue.
Revenue increased 34, 3% to $4 3 billion.
And the segment generated record profit and operating margin.
Market demand was elevated in nearly all business units had revenue and profit growth.
<unk> led the way driven by strong growth on the outbound Asia Lane for both air and Ocean.
And health care activities delivered the highest top and bottomline growth ever.
Growth was broad based from Biopharma in biologics as well as implantable medical device and lab customers, all while providing near perfect service during the quarter for COVID-19 vaccine deliveries.
In the first quarter supply chain and freight generated operating profit of $395 million and operating margin was nine 2%.
Walking through the rest of the income statement, we had $177 million of interest expense. Other pension income was $313 million and lastly, our effective tax rate came in at 21, 6% due to discrete items.
Now, let's turn to cash and shareowner returns.
Our focus on bottom line results drove strong cash flow in the quarter.
We generated $4 $5 billion in cash from operations.
Free cash flow for the period was $3 7 billion.
130% increase year over year.
And lastly, so far this year U P. S has distributed $938 million in dividends.
Moving to our outlook for 2021.
We recognize there is still uncertainty ahead related to the pandemic and other factors that could interrupt the recovery. So we are not providing revenue or diluted earnings per share guidance at this time.
As Carol mentioned, we expect the sale of UBS freight to close during the second quarter and today, we are reaffirming our capital allocation plans.
To that end, we still expect capital expenditures to be about $4 billion.
We have no plans to repurchase shares at this time and our effective tax rate for the remainder of the year is expected to be around 23, 5%.
We repaid $1 5 billion of long term debt maturities in the first quarter.
And in early April we repaid another $1 billion in debt, achieving our 2021 target of $2 5 billion in debt repayment.
And lastly on March 11th the American Rescue Plan Act was signed into law. This law protects certain multiemployer pension plans from becoming insolvent through 2051 and in turn eliminates our balance sheet liability for potential coordinating benefits related to the central States pension fund the.
On the passage of the law triggered us to re measure the EPS I BT pension plan at current discount rates, which have significantly increased since year end.
The result was a $6 4 billion reduction in our pension liability.
Additional information is available on the appendix section of today's earnings presentation as Carol mentioned, a strong balance sheet is a core EPS principle, and we are absolutely moving in a positive direction.
The reduction in pension liability and debt repayments have reduced our long term obligations by seven $9 billion.
Combined with our improving business performance, our leverage ratios have significantly improved.
In closing we are laser focused on executing our strategy and look forward to sharing more with you at our June 9th Investor and Analyst day.
Thank you and operator, please open the lines.
Thank you we will now conduct a question and answer session. As a reminder, for our teleconference. Participants if you would like to ask a question. Please press one thing zero on your keypad.
Albert Please for our first question.
Our first question will come from the line of Ravi Shanker with Morgan Stanley. Please.
Please go ahead.
Thank you and good morning, everyone. Carol looking ahead to the June 9th Analyst Day can you share a little more color on how transformation three point, though is going kind of what are some of the key.
Categories in buckets that you've outlined there and if they did the cost savings as part of that program can get up to the kind of 8% of the cost base that you saw in that transformation do I know thank you.
Thanks Robin for your question, we're looking forward to the June Investor and Analyst Day, where we will give you much more color on our forward looking outlook.
Including what we're doing from a productivity perspective, as we think about productivity, we really want to move away from it and then in other words, a transformation of that to actually a virtuous cycle and were starting that as you see in our results in the first quarter. If you look at our operating performance we drove productivity in nearly every.
Operating category and when I think about productivity in the business. It's really about packages per hour, we had improvement in packages per hour in our search and our theater and our hub operations, we saw productivity in our delivery. Our route density improved year on year driven in large part by our Orion technology. So we're going to give you a lot.
More color as to what we're doing to drive.
Liberty in the business at our Investor Day, one more comment on productivity and that relates to non operations. When you referred to that Brian is transformation Donato and at the beginning of the year. We told you we were taking out $500 million on expense in our non operations area, we're well down the path in that regard.
We are on plan and hopefully we'll deliver that result by the end of the year.
Our next question will come from the line of Allison Landry of Credit Suisse. Please go ahead.
Oh good morning. Thanks.
Just in terms of domestic margins.
If I sort of apply normal sequential trend Q2 to Q1 10 four.
For the balance of the year. So Q2 to Q4 seemed to imply full year segment margin and 11, 5% range. So I'm curious is that the right way to think about it and if not what are some of that potential costs are a mixed headwind that might be a sequential drag during the remaining quarters of the year. Thank you.
Hey, Allison, it's Brian I'll take that.
The one caveat to your question is I'd be careful about applying history to the future and the reason I say that is that.
Historically, we've taken quite a bit of time to get the peak cost from November December out of the domestic business.
On the U S operating team did a very good job this year planning for it and pulling those cost out quite quickly so the.
On a CPP growth was only 2% and RVP was over 10%. So you had an $8 spread we're confident the domestic margin is expanding this year I would just be careful about extrapolating history to the future.
Okay, great. Thank you.
<unk>.
Our next question will come from the line of Chris Weatherby of Citi. Please go ahead.
Yeah, Hey, thanks, Good morning, maybe I could pick up on that last point, Brian Sue CPP plus 2%.
You know I guess productivity is going into that you. Obviously did a really good job with cost controls as well how sustainable is that level of cost per piece increase going forward. Obviously, we understand what's going on with the pricing environment, but with volume decelerating or you're going to be able to maintain that level of cost control.
Thanks, Chris look the taking out on the temporary labor the rentals, which we returned on an accelerated basis. Those were a lot of the reasons, Chris we were able to do to limit the growth of CPP to 2%.
As Carol mentioned, there's a lot that goes into our cost combination of non op and operating we're going to continue to drive leverage throughout the system is 2%. The number going forward, we're going to have a more of a conversation about that in June so I won't talk as much about the future, but we were pleased with the performance in the quarter and confident in our ability to continue operating leverage going forward.
Yes.
Alright. Thanks.
Our next question will come from the line of Tom wider width of UBS. Please go ahead Sir.
Yes, good morning.
Another question for you on domestic margin I think that's been a key point of debate and obviously you gave us a lot of good news to work with in the first quarter results.
How do you think about what the most important year over year drivers were for that improvement.
<unk> I guess was flat, but that's better than you've seen you know pricing was strong I think you've got some of the cost take out from the 500 million program, but what do you think was most important year over year and how do you think about the key drivers whether youre kind of early in those or whether youre just kind of how much runway you have left on those key drivers are domestic.
Improvement.
Thank you.
Well, maybe I'll start, Brian and ill turn it over to you.
You've heard us talk about our better not bigger framework and that's really about optimizing the network and you saw that take hold in the first quarter with over 63% of our average daily volume growth in the United States, driven by small and medium size businesses that was a large contributor to the growth.
<unk> and RP panel in the quarter and when you have a 10% growth on RPT, while youre going on you're going to leverage the bottom line and we did just that so optimizing the network and leaning in to those opportunities of growth debt.
Candidly the revenue quality is better for us our customers like the offering the end to end network that we present to them, that's really laying the future for our growth going forward, coupled with health care. Those two growth opportunities are a winning combination.
We saw the same opportunity outside the United States to with Great F&B growth, 23% and our international business. So optimizing the network leaning into those areas of growth that they're most attracted to us in winning in those areas certainly it was a big part of the value equation and it will be a big part of that equation going forward.
Net productivity as well, we want productivity to be a virtuous cycle here every day, we should run a better business and that's what we're doing from a from a cost out perspective, you might just talk about casualty and the real impact on casualty added in the corner, yes, Tom So we saw a benefit in casualty it was about $90 million relative to <unk>.
Your year.
And we're really focused on the accident and some of that was lapping some tier three accidents last Q1, but as Carol mentioned, we're leveraging technology telematics to go after the auto frequency and severity challenge that has been in the industry. Additionally, workers' comp that's the other piece that goes into casualty, that's driven by systemic turnover and training.
And the teams are really going about.
Arduous effort to to attack that so those trends don't turn overnight, but we're seeing some some demonstrated improvement.
Our next question will come from the line of Amit Malhotra of Deutsche Bank. Please go ahead.
Yeah.
Thanks.
On on productivity.
What was the net productivity number on domestic relative to $500 million.
Non operating savings and then just general on on the SMB point I think.
SMB growth is it's just so key to the.
Revenue quality initiatives that you on <unk>.
Have.
You've obviously invested a lot in time in transit fastest ground ever just on.
In that context.
How do you see the the service products stacking up versus your main competitor after these investments and fastest ground ever.
And I'm wondering if you see the need to further invest in something like direct Sunday delivery outside of the USPS postal injection.
And what kind of cost or fixed cost absorption issues that has if you decided to go that route just some unintended I guess.
Yeah, So I'll take the latter part of the question.
So our customers are responding to the investments that we made last year to speed up our time in transit.
But there is no finish line here. So we continue to invest in time and transact we are expanding our weekend.
Delivering its our Saturday coverage will increase to 90% of the U S population by October and will go through the details of this at our June Investor Day, but Michael.
I'll, let you know what we're doing because we're increasing our our weekend delivery because our customers are demanding that we love our share post product sure post was about 36% of the ATB growth in the first quarter, but the cool thing about <unk> is about 41% of that product was redirected back into the UBS network, which allows us to get delivery.
Density so that's a great way to think about how we can grow Sunday. So we will be expanding our Sunday deliveries as well and we really look forward. We don't have enough time. This morning, but we really look forward to the June Investor Conference, because we're talking about how by expanding our network across seven days, we can actually eliminate some of the lumpiness in the network.
The middle of the week and the Lumpiness in the network in the middle of the week, it's causing some of the productivity of deleverage that we see on business and if we can flatten out the demand we can really get some great productivity.
So well will walk us through that algorithm at our June Investor Day.
On the topic of cost takeout.
We spent roughly $6 billion in non op. We had committed in 2021 to take $500 million out that's a start there'll be more next year in the first quarter, we took $80 million of the 500 out which is exactly on our plan. So we are tracking to deliver that 500 associated as a big driver of that was about 700 head counts and have participated in the VSAT and the voluntary.
Separation program. So we're on track and committed to the 500 and the cool thing about leveraging on a seven day network is that it's capital light isn't guidance, yes, yes.
Well, that's an expense into the network will have to have some more drivers lab test from our operators.
Where packet scars that its pretty its pretty capital light like that different type of announcement on different gets a like a different line item on the on the income statement, rather than a depreciation expense coming off of capital and so on the operations expense and we can lever that all that all day long because the right revenue quality.
Love It thanks, guys congrats on a good quarter appreciate it.
<unk>.
Our next question will come from the line of Allison.
Paul Politely colleague of Wells Fargo. Please go ahead.
Good morning.
Just wanted to touch on international you know clearly benefiting from the macro but could you expand a bit more on the internal efforts to grab more of that white space, mainly on the international markets. I think you called out that F&B specifically in international maybe early days of trying to understand how you think of the internal initiatives on evolving through the year in international any thoughts there.
Yeah, we're just scratching the surface on what we could do from a growth perspective without putting a lot of capital into the international business by creating what we have in United States, which is a digital access platform. We're very excited about introducing that into our international businesses, we really aren't there today, but our customers and.
The U S. One shot on them on a sell through this platform outside the United States. So we will be investing that in a major gateway and there are a number of other efforts underway Allison midnight I hate to keep kicking.
Kicking the can down to June, but we're going to have Scott talked about all of this at the June Investor Conference. So I'll try it for a little bit and we'll give you more color gray.
Thank you.
Our next question will come from the line of Scott Group Wolfe Research. Please go ahead.
Hey, Thanks, Good morning, So I wanted to ask you about some of the revenue drivers. So the volume just get so funky going forward, maybe can you give us some thoughts on April <unk> C and <unk> volume trends and.
And how are you thinking about overall volumes in the second quarter U S and international and then just with that right. The b to B B to C mix should be meaningfully positive you would think going forward. So does that drive the RPT growth, even higher on a year over year basis going forward. Thank you.
Thanks, Scott So I'll take it.
From a trend perspective April is off to a good start.
And your point about <unk>.
We're comping down 22 last year in the second quarter in terms of <unk>. So we would expect the commercial side of the business to come back in the first quarter. It was still down 6% in the U S. But in the month of March It was actually up 8%. So there were signs of life that it was coming back.
Mystically internationally, we actually posted plus 10% on the <unk> side in the first quarter. So as we think about the next quarter the comps in the U S down 22 give us reason to believe that the commercial side will come back and obviously our density on our commercial side of the business is.
More attractive than they are.
Residential side, so that'll be another positive.
As you build your model I think is important given the year over year comparisons and the Funkiness of the volume just expect revenue to grow faster than volume.
But do you have any color on our BDC volumes up down overall volumes up down.
It's.
Any color you can give us would be great.
<unk> volumes are up they are.
Yeah.
Great. Thank you guys.
Yes.
Our next question will come from the line of Ken exterior of Bank of America. Please go ahead.
Hi, great Congrats and good morning.
So just maybe a little bit on that that future growth I guess just to clarify that last comment there so you're still expecting positive growth against despite the up 25% kind of low double.
Double digit growth in ground on export for the rest of the year just to clarify that last point and then.
Focusing on on.
A bit maybe.
Maybe your thoughts are you starting to see Europe rebound at all given the lockdowns or is that more still just be to see still growing there because of the lockdowns and not yet seeing that need to be rebound.
So maybe I'll take the first part and Carol can handle the second from a growth perspective, just picking up on the on the last comment yes, we expect positive growth.
Maybe not in 2014% Adv, we saw on the first quarter, but certainly positive growth.
And on the international side as we talked about our export business was up in all geographies outside the United States.
<unk> to Europe itself, we had outstanding.
Export volume in the 20% and our European business is the biggest part of our export business, making up over 60% of our export business. So Europe really matters to our international performance.
Might just comment on the U K, it's really interesting what we're seeing in the U K, our domestic UK business is quite strong our export business out of the U K is great export outside of the inter continent, but theres been some Brexit disruption candidly that we've had to work through we're not alone everybody has had to work through the Brexit just disruption U K to the.
On Intercontinental.
Our next question will come from the line of Brian on US in back of J P. Morgan. Please go ahead.
Hey, good morning, Thanks for taking the question.
Just wanted to go back to productivity for a second I know last quarter. You mentioned delivery density was a bit of a headwind.
Clearly the mix is starting to improve and this is a hard metric to to really turn the corner on it sounds like a lot of other things are moving positive. So do you expect you can improve stop density.
Central stop density independent of mix or is that something that you think the mix is just going to take care of it.
It's less about what you can do and more about what type of business that you have any thoughts on that would be appreciated.
Or if we look at delivery density and for the quarter. It was down slightly year on year, but improved from both the third and fourth quarter of last year. So the sequential trends arent. Good clearly that's a part of the mix change.
But we don't want to just rely on the mixed change to improve delivery density we want to be in control of our density.
Denis I should say and so we've got a number of pilots underway to see if we can improve delivery density and we'll touch on some of those pilots at our June Investor Day.
Okay look forward to then thank you.
Our next.
Question will come from the line of Jordan I'll, let true of Goldman Sachs. Please go ahead.
Yeah, Hi, I know you guys had talked about I think you mentioned surcharges are still in place mix is helping all of that is helping profitability.
Just a little bit the core price aspect, which I think is part of the revenue quality and I'm sure you'll touch on on the analyst day, but where are you on the contract.
Negotiation process and have worked through how much went on behalf of its going as expected.
So as it is a matter of course, we have a number of longer term contracts that come up for renewal every year and when those contracts come up for renewal, we negotiate through those and our team Kate and team have done a masterful job of managing through that those contract renewals in this very challenging demand environment.
So would you is there a certain timeframe in terms of runway is it like a three year process.
<unk> gone through the contracts and any ideas around that.
It never ends I mean every year there are a number of contracts that come up for renewal because we have staggered maturities.
I think if this is a virtuous cycle as well.
Thank you.
Our next question will come from the line of Scott Schneeberger of Oppenheimer. Please go ahead.
Thanks, very much so could you please elaborate a little bit on the vaccine distribution. It sounds like there's a lot of momentum going international just curious about the profitability characteristics of the program and and and and the magnitude. Thanks.
Well I don't think it's appropriate for me to talk about the profitability of our product, but we can talk broadly about our health care business, which includes vaccines and our health care business is very neutral to the overall business as Brian commented, we had the best topline and Bottomline performance ever.
We do make money on vaccines as you can appreciate principally because of the value added attributes to the vaccines UBS program here as a special label that goes on top of the package that label has a battery inside so we can track that catch wherever it is throughout our network. We stood up on command center to watch that package wherever it is.
Throughout the network in these these are precious vaccine. So we want to make sure they get to their dosing site on time, and we're able to do that with 99, 9% on time on delivering so clearly there's a value add in value is defined by what the customers are willing to pay for so hopefully that helps you understand the profitability of that of that of that segment.
Our next question will come from the line of Helane Becker of Cowen. Please go ahead.
Yeah.
Thank you for the time, everybody just a couple of questions on pension.
Ryan just this the changes mean that.
The yellow and red on year on.
On the pension plan all go to Green now and I think at the end of the year you were 80% funded.
For 2020.
What is the change due to your pension contributions for 2021 and does that bring you into fully funded status.
So yes, most of our measures go into green.
The benefit we saw was a combination.
The central state for first of all liability for $5 5 billion. We also had to re measure the IBP plan at the end of the quarter that combined with the asset returns was close to another 1.900 billion. So thats a $6 4 billion. So that's a a reduction in liabilities for us.
On the funded status.
On the IBP plan will actually be funded at a 100%. So that's a positive.
And going forward from a P&L perspective.
The.
P&L benefit side from the asset base, we will see about $50 million a reduced service costs on a quarterly basis going forward. So it is both a liability balance sheet impact as well as a P&L benefit.
As far as funded status, we update that when we re measure based on discount rates, so that moves up and moves down but clearly the liability was a favorable for us I think Brian it's.
I'm sorry Chiara.
80% number on a relative number at 90 for all the attention from all of the pinch points I was talking IBP specific yeah, yeah. So workforce.
Close to 90% of late across all three major plans.
Okay, that's great.
Thank you very much.
Our next question will come from the line of Brandon Oakland Ski of Barclays. Please go ahead.
Hey, good morning, everyone and thank you for taking my question. So.
Brian I don't want to steal your Thunder for the June analyst meeting, but we do have a call here. So can you talk about capital priorities going ahead, especially with these changes on the pension side you guys do have a lot of cash here and you explicitly said no share repurchases as of now so can you talk through like the thought process going forward.
Yeah happy to Brendan so.
Our thought process Hasnt changed from a principal perspective, the first allocation of capital will be end of the business, obviously with the type of returns the improving domestic business and the growth in international and supply chain in healthcare, we're going on we're going to continue to invest in those businesses.
And so forth and investments will not just take the form of Capex. There are new investments in SaaS and capabilities that we're putting in from an opex perspective, So we will do that.
We're committed to the dividend.
We will have a capital discussion in the June conference. So I don't want to front run that discussion.
And then obviously improving the flexibility of the balance sheet, which we're making good strides on and on share repo. We don't have any plans to repurchase shares currently but as Carl said on the last call. We'll continue to look and evaluate that going forward.
Thank you.
Our next question will come from the line of Joe Nathan of Daiwa. Please go ahead.
Hi, Thanks for taking my question. So I just wanted to understand.
On your thinking with regard to from new last mile competition.
Companies like Uber door dash and the others so do.
Do you see yourself from UBS and the industry.
Coexist and use the last mile.
The competition is.
It can do a USPS here.
Especially you know we have noticed.
These companies have been pretty aggressive on the price side.
And last day into these markets. So I just wanted to kind of understand the thought process here.
Yeah on long on are the days when we describe our competitive set as.
So it's headquartered in Memphis, and headquartered in Washington, D C or those headquartered on the West Coast and there are lots of players that are coming into the supply chain and everybody wants a little piece of the pie and our job is to keep them out of the pie that we wanted and we are doing that by investing in the capability.
Is that the customers matter, most and I again without I'm, sorry to be wasting your time, hopefully not today, but we're going to kick the can down the road one more time, because we're going to talk to you about the enabling capabilities that we are investing in at our June Investor Conference to continue to offer the services that matter most to the customers that we want to serve.
Okay. Thank you.
Yes.
We have a follow up from the line of Todd Fowler of key Banc capital markets. Please go ahead.
Hey, great. Good morning, Thanks for taking the question.
It sounds like that.
SMB and in health care, we're really big contributors to the growth within U S. Domestic this quarter on.
Can you talk about the opportunity the longer term opportunity you know kind of where you're at in your progress with those initiatives I mean, how do we think about the balance between some of your existing legacy accounts net business as you focus on growth with with SMB and health care. Thanks.
Our focus on SMB and health care does not take away our desire to grow our large enterprise accounts, which are many large retailers and if I look at those large enterprise accounts, which we very much appreciate the relationship we have with those customers. They were very growth say in the first quarter. They grew mid teen.
So that's very growth and compare it to what we were up against so we will continue to investing that experience.
As well, but we're really looking at an end to end experience and have discovered 16 customer journeys, where we can based on customer feedback, where we can make improvements and based on those improvements get stickiness with those customers and those customer journeys are is true for our SMB customers as they are for our enterprise customers and we will talk more about that.
At our June Investor Day.
Okay. Thank you.
We have on follow up from the line of Amit Mehrotra of Deutsche Bank. Please go ahead.
Hey, Thanks for taking the follow up just related to that SMB I.
I think Carol a few quarters ago, you had talked about what percentage of your domestic business was asked F&B I think it was maybe 25% I'm wondering if you can update us on that obviously, it's growing a lot but off a smaller base and maybe I don't know if you're willing to do this but just update us on what Amazon.
As a percentage of revenue because obviously your SMB is growing faster than your enterprise customers with Amazon to your largest and given that's a big topic of discussion I'm wondering if you could.
Just add a little bit.
Well I'll tell you the S&P as a percent of total is 27%. So we've shown a nice increase in penetration there I'm delighted with that.
And we disclose Amazon at the end of every year. So I think we'll just wait to do that.
Okay, Alright, thank you very much.
Second force too.
Steven before we Oh, we've got time for probably one more question. This morning.
Already our final question will come from the line of David Vernon of Bernstein. Please go ahead Sir.
Hey, good morning. Thanks.
Thanks for squeezing me in.
Question is about the commercial side on the house.
Or are you rethinking the day approach on better not bigger base.
Based on your success in growing volume to date at a decent degree of operating leverage and could you comment on whether you're starting to see any customer churn as a result of on pricing and revenue quality initiatives.
So.
We love our commercial business and we're delighted to see it coming back on when we think about the segments that we serve from a commercial perspective, the largest segment is retail and as retailers start to open their stores.
To come back in a meaningful way and that would be great business for us. So we look forward to them on the economy, continuing to recover and our commercial business coming back as well.
Yeah.
Thank you Sir I'd like to turn the floor back over to our host Mr. Scott Childress for any closing remarks. Please.
Thank you.
This concludes our call and we want to thank everyone for joining us and hope that you have a great day. Thank you.
Yeah.
Yeah.
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Yes.
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