Q3 2023 United Parcel Service Inc Earnings Call
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[music].
Speaker 1: transcript
Speaker 1: Good morning, my name is Steven and I will be your conference facilitator today. I would like to welcome everyone to the UPS and Vector Relations, Third Quarter 2023 Ernie's Conference call. All lines have been placed on you to prevent any background noise and after the speaker's remarks, there will be a question and answer here.
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 third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise and after the Speakers' re.
<unk> there will be a question and answer period.
Speaker 1: transcript
Speaker 1: Any analyst that would like to ask a question, now is the time to press the 1.0 on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. PJ Guido, investor relations officer, Sir. The floor is yours.
Any analyst that would like to ask a question now is the time to press. The one then zero on your telephone keypad.
It's now my pleasure to turn the floor over to your host Mr. P. J Geidel Investor Relations officer, Sir the floor is yours.
Speaker 2: transcript
Speaker 2: Good morning and welcome to the UPS 3rd quarter 2023 earnings call. Joining me today are Carol Tome, our CEO , Brian Newman, our CFO , and a few additional members of our Executive Leadership Team.
Good morning, and welcome to the UBS third quarter 2023 earnings call. Joining me today are Carol <unk>, our CEO, Brian Newman, our CFO and a few additional members of our executive leadership team.
Speaker 2: transcript
Speaker 2: Before we begin, I want to remind you that some of the comments will make today our forward-looking statements within the federal security laws and address our expectations for the future performance or operating results of our company.
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 expectations for the future performance or operating results of our company.
Speaker 2: transcript
Speaker 2: These statements are subject to risks and uncertainties, which are described in our 2022 form 10K and other reports we file with, or furthest to, the Securities and Exchange Commission.
These statements are subject to risks and uncertainties, which are described in our 2020 to Form 10-K, and other reports, we filed with or furnished to the securities and Exchange Commission.
Speaker 2: transcript
Speaker 2: These reports, when filed, are available on the UPS Investor Relations website and from the FES.
These reports when filed are available on the UBS Investor Relations website and from the SEC.
Speaker 2: transcript
Speaker 2: Unless stated otherwise, our discussion refers to adjusted results. The third quarter of 2023, gap results include an after-tax charge of $219 million or 26 cents per diluted share. Comprised of, a one-time payment of $46 million to certain US-based non-union part-time superrides.
Unless stated otherwise are discussion refers to adjusted results for the third quarter of 2023 GAAP results include an after tax charge of $219 million or 26 per diluted share comprised of a one time payment of $46 million to certain U S based non union.
Part time supervisors.
Speaker 2: transcript
Speaker 2: transformation in other charges of $70 million. And non-cash goodwill impairment charges of $103 million.
Transformation and other charges of $70 million and noncash goodwill impairment charges of $103 million.
Speaker 2: transcript
Speaker 2: A reconciliation to GAAP financial results is available on the UPS Investor Relations website, along with the webcast of today's call.
A reconciliation to GAAP financial results is available on the UBS Investor Relations website, along with the webcast of today's call.
Speaker 2: transcript
Speaker 2: Following our prepared remarks, we will take questions from those joining us via the telecom group. If you wish to ask a question, press one, and then zero on your phone to enter the queue. Please ask only one question so that we may allow as many as possible to purchase...
Following our prepared remarks, we will take questions from those joining us via the teleconference. If you wish to ask a question press, one and 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.
Speaker 2: transcript
Speaker 2: 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, B.J. and good morning.
You may rejoin the queue for the opportunity to ask an additional question and now I'll turn the call over to Carol.
Steven: Good morning, my name is Steven, and I will be your conference facilitator today. I would like to welcome everyone to the UPS Investor Relations, 3rd quarter, 2023 earnings conference call. All lines have been placed on you to prevent any background noise and after the speaker's remarks, there will be a question and answer period.
Thank you P J and good morning.
Speaker 3: transcript
Speaker 3: Let me begin by thanking UPSers for their hard work and effort.
Let me begin by thanking <unk> for their hard work and effort.
Speaker 3: transcript
Speaker 3: Our U.S. labor contract was ensued ratified until early September . And I'm proud of our UPSers for staying focused during the entire labor negotiation and for providing industry leading service to our customers.
U S labor contract with them fully.
Ratified until early September and I'm proud of our <unk> for staying focused during the entire labor negotiation and for providing industry, leading service to our customer.
Unknown Executive: Any analyst that would like to ask a question now is the time to press the 1-10-0 on your telephone keypad.
Speaker 3: transcript
Speaker 3: We expected conditions in the third quarter to be challenging and they were. The global macro environment remained weak with some countries in recession, which pressured international and freight forwarding volume.
We expect that conditions in the third quarter to be challenging and they were.
PJ Guido: It is now my pleasure to turn the floor over to your host, Mr. PJ Guido, Investor Relations Officer, Sir, the floor is yours. Good morning, and welcome to the UPS 3rd quarter, 2023 earnings call. Joining me today are Carol Tomay, our CEO, Brian Newman, our CFO, and a few additional members of our Executive Leadership Chief.
The global macro environment remained weak with some countries in recession, which pressured international and freight forwarding volume.
Speaker 3: transcript
Speaker 3: And in the US, labor of certainty negatively impacted volume from most of the quarter.
And then in the U S labor uncertainty negatively impacted volume for most of the quarter.
Speaker 3: transcript
Speaker 3: From a demand perspective, August proved to be the most challenging. As some customers waited for the ratification of our Teamster contract before returning volume to our network.
From a demand perspective August proved to be the most challenging.
Some customers waited for the ratification of our teamster contract before returning volume to our network.
PJ Guido: Before we begin, I want to remind you that some of the comments will make today are forward-looking statements within the Federal Security's laws and it's going to 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 2022 form 10K and other reports we file with or furnished to the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC.
Speaker 3: transcript
Speaker 3: Since contract ratification, we've been gaining volume momentum. We exited the last week of September with US average daily volume or ADV down 7.4%. A marked improvement from the rest of the quarter.
That contract ratification, we've been gaining volume momentum we.
We exited the last week of September, but U S average daily volume or Adv down seven 4%.
A marked improvement from the rest of the quarter.
Speaker 3: transcript
Speaker 3: Our salespeople have produced record results from the combination of wind back and new customers. To date, we've run back roughly 600,080V of diverted volume and we are working to win back all diverted volume by the end of the year.
Our salespeople have produced record results from the combination of went back and new customers to.
To date, we've won back roughly 600000 Adv of diverted volume and we are working to win back all diverted volume by the end of the year.
PJ Guido: Unless stated otherwise, our discussion refers to adjusted results. To the 3rd quarter of 2023, that results include an after-tax charge of $219 million or 26 cents per diluted share, comprised of a one-time payment of $46 million to certain US-based non-union part-time supervisors. Transformation and other charges of $70 million and non-cash goodwill in payment charges of $103 million. A reconciliation to gas financial results is available on the UPS Investor Relations website along with the webcast of today's call.
Speaker 3: transcript
Speaker 3: And looking at ourselves pipeline, we are pulling through new customers that value our superior on-time performance and want to come to UPS prior to the busy peak holiday season.
And looking at ourselves pipeline, we are pulling through new customers that value our superior on time performance and want to come to <unk> prior to the busy peak holiday season.
Speaker 3: transcript
Speaker 3: Moving to our financial results, our third court performance well down considerably from last year was in line with our expectations.
Moving to our financial results, our third quarter performance was down considerably from last year was in line with our expectation and.
Speaker 3: transcript
Speaker 3: In fact, you're involved with the timing of contract ratification and higher labor costs resulting from the new labor contract.
And factored into both the timing of contract ratification and higher labor costs, resulting from the new labor contract.
Speaker 3: transcript
Speaker 3: Solidated revenue in the third quarter was $21.1 billion. Down 12.8% compared to last year.
Consolidated revenue in the third quarter was $21 1 billion down 12, 8% compared to last year.
PJ Guido: Following our prepared remarks, we will take questions from those joining us via the teleconference. If you wish to ask a question, press one, and 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 for the opportunity to ask an additional question.
Speaker 3: transcript
Speaker 3: Operating profit was $1.6 billion, a decrease of 48.7% from last year, and consolidated operating margin with 7.7%.
Operating profit was $1 6 billion a decrease of 48, 7% from last year and consolidated operating margin was seven 7%.
Speaker 3: transcript
Speaker 3: Brian will provide more details on our performance in a moment.
Brian will provide more details on our performance in a moment.
Speaker 3: transcript
Speaker 3: With a third quarter behind us, we are laser focused on restoring volume in our network and executing our strategy to deliver share owner value.
For the third quarter behind US we are laser focused on restoring volume in our network and executing our strategy to deliver shareowner value.
Carol Tom: And now I'll turn the call over to Carol. Thank you, PJ, and good morning. Let me begin by thanking UPSers for their hard work and efforts.
Speaker 3: transcript
Speaker 3: So let me turn to our strategic update. Our customer first, people led innovation driven strategy, is enabling us to stay focused on our core business, and invest to grow in the most attractive parts of the market like healthcare and with SMB.
So let me turn to our strategic update our customer first people led innovation driven strategy is enabling us to stay focused on our core business and then invest to grow in the most attractive parts of the market like health care and with SMB.
Carol Tom: Our US labor contract wasn't fully ratified until early September. And I'm proud of our UPSers for staying focused during the entire labor negotiation and for providing industry leading service to our customers. We expected conditions in the third quarter to be challenging and they were. The global macro-environment remained weak with some countries in recession, which pressured international and freight forwarding volume. And in the US labor uncertainty negatively impacted volume from most of the quarter.
Speaker 3: transcript
Speaker 3: Starting with customer first, under our Better and Bolder framework, we recently announced two acquisitions that will further drive growth in healthcare logistics and in end-to-end return solutions.
Starting with customer first under our better and build our framework. We recently announced two acquisitions that will further drive growth in healthcare logistics and an end to end returns solution.
Speaker 3: transcript
Speaker 3: One of our strategic objectives is to become the number one complex healthcare logistics provider in the world, and we are making bold moves to get us there.
One of our strategic objective is to become the number one complex healthcare logistics provider in the world.
Carol Tom: From a demand perspective, August proved to be the most challenging as some customers waited for the ratification of our teams to contract before returning volume to our network. Since contract ratification, we've been gaining volume momentum. We exited the last week of September with US average daily volume, or ADV, down 7.4%, a marked improvement from the rest of the quarter. Our salespeople have produced record results from the combination of windback and new customers.
And we are making bold move to get us there.
Speaker 3: transcript
Speaker 3: last year's acquisition of BOEMI, and our recently announced pending acquisition of MNX Global Logistics.
Last year's acquisition of bromine and our recently announced pending acquisition of <unk> Global logistics are two examples of bold moves in health care.
Speaker 3: transcript
Speaker 3: are two examples of bold moves in health care.
Speaker 3: transcript
Speaker 3: MNx is an industry leader in time-critical and temperature-sensitive logistics, tailor-made for the complex needs of global healthcare.
<unk> is an industry leader in time critical and temperature sensitive logistic.
Tailor made for the complex needs of global Health care.
Speaker 3: transcript
Speaker 3: by combining MNX with UPS Express Critical and our global integrated network, we will enhance the speed and reliability of our healthcare portfolio. With MNX, UPS will be able to reach new healthcare markets like in Asia and new customers like the radiopharmaceutical sector.
By combining <unk> with UBS Express critical and our global integrated network, we will enhance the speed and reliability of our health care portfolio.
Carol Tom: To date, we've run back roughly 600,000 ADV of diverted volume, and we are working to windback all diverted volume by the end of the year. And looking at ourselves pipeline, we are pulling through new customers that value our superior on-time performance and want to come to UPS prior to the busy peak holiday season. Moving to our financial results, our third quarter performance, while down considerably from last year, was in line with our expectations.
With M&A ex UBS will be able to reach new health care markets like in Asia, and new customers like the radiopharmaceutical sector.
To further support our healthcare strategy. This year, we've opened seven dedicated health care facilities in Europe and in the U S.
Speaker 3: transcript
Speaker 3: To further support our healthcare strategy, this year we've opened seven dedicated healthcare facilities in Europe and in the U.S.
Speaker 3: transcript
Speaker 3: and the acquisition of BOMI further strengthen our healthcare footprint in Europe and Latin America.
And the acquisition of <unk> further strengthen our health care footprint in Europe, and Latin America.
Carol Tom: In fact, we've been involved in timing of contract ratification and higher labor costs resulting from the new labor contract. Consolidated revenue in the third quarter was $21.1 billion, down 12.8% compared to last year. Operating profit was $1.6 billion, a decrease of 48.7% from last year, and consolidated operating margin with 7.7%.
Speaker 3: transcript
Speaker 3: Since 2020, we have more than doubled our healthcare distribution space globally. These efforts and more are keeping us on track to reach our $10 billion healthcare revenue target this year, and we're just getting started.
Since 2020, we have more than doubled our healthcare distribution space globally. These efforts and more are keeping us on track to reach our $10 billion healthcare revenue targets. This year and we're just getting started.
Speaker 3: transcript
Speaker 3: Turning to returns. With the explosion of e-commerce demand, our returns business has been a key area of growth over the last several years.
Turning to returns with the explosion of E Commerce demand our returns business has been a key area of growth over the last several years.
Speaker 3: transcript
Speaker 3: What we've seen over this time is an increasing desire on the part of both our customers and our recipients for a frictionless and simple end-to-end return experience.
What we've seen over this time as an increasing desire on the part of both our customers and our recipient for a frictionless and simple end to end returns experience.
Carol Tom: Brian will provide more details on our performance in a moment. With a third quarter behind us, we are laser-focused on restoring volume in our network and executing our strategy to deliver share-owner value.
Speaker 3: transcript
Speaker 3: We've been building out this experience, but to help us get there faster, we just entered into an agreement to acquire Happy Returns, a technology-focused company that enables frictionless, no-box, no-label returns. By combining Happy Returns' easy digital experience and established drop-off points with UPS's small package network and footprint of close to 5,200 UPS store locations.
We've been building out this experience, but to help us get there faster, we just entered into an agreement to acquire happy returns.
A technology focused company that enables frictionless no box no labeled return <unk>.
Carol Tom: So let me turn to our strategic update. Our customer first, people led innovation driven strategy, is enabling us to stay focused on our core business and invest to grow in the most attractive parts of the market, like healthcare and with SMBs. Starting with customer first, under our better and bolder frameworks, we recently announced two acquisitions that will further drive growth in healthcare logistics and in end to end return solutions. One of our strategic objectives is to become the number one complex healthcare logistics provider in the world, and we are making bold moves to get us there.
By combining happy returns easy digital experience and established drop off points with Ups's small package network and footprint of close to 5200 UPN store locations.
Speaker 3: transcript
Speaker 3: Box-free, label-free returns will soon be available at more than 12,000 convenient locations in the U.S. But our plans for returns don't end there.
Fox Free label free returns will soon be available at more than 12000 convenient locations in the U S.
But our plans for returns don't stop at convenience.
Speaker 3: transcript
Speaker 3: For our enterprise retail customers, we plan to provide a consolidated return solution that will lower their costs and improve their experience.
While our enterprise retail customers.
Plan to provide a consolidated return installation that will lower their cost and improve their experience.
Speaker 3: transcript
Speaker 3: And for UPS, Happy Returns expands our returns portfolio with an innovative solution that will generate profitable B to B volume and help drive pickup and delivery deficit.
And for UBS happy returns expands our returns portfolio with an innovative solution that will generate profitable <unk> volume and helped drive pickup and delivery density.
Carol Tom: Last year's acquisition of BOMI and are recently announced pending acquisition of MNX global logistics are two examples of bold moves in healthcare. MNX is an industry leader in time-critical and temperature sensitive logistics, tailor-made for the complex needs of global healthcare. By combining MNX with UPS-express critical and our global integrated network, we will have to speed and reliability of our healthcare portfolio. With MNX, UPS will be able to reach new healthcare markets like in Asia and new customers like the radio-pharmaceutical sector.
For us customer first isn't just about growth, it's about meeting customer needs to that end, we are continuing to improve the delivery experience with the expansion of UBS delivering photo.
Speaker 3: transcript
Speaker 3: For us, customer first isn't just about growth, it's about meeting customer needs. To that end, we are continuing to improve the delivery experience with the expansion of UPS delivery photos. Ninety-two percent of our residential stops globally include a photo that shows exactly where the package was delivered.
92% of our residential stops globally include a photo that shows exactly where the package was delivered.
Speaker 3: transcript
Speaker 3: Not only does delivery photo provide peace of mind to recipients, but we get fewer calls about missing packages.
Not only does delivery photo provide peace of mind to reset again, but.
But we get fewer calls about missing packages.
Speaker 3: transcript
Speaker 3: With delivery photo, UPS has seen a reduction in U.S. delivery related support requests of more than 15 percent.
With delivery of photo UBS has seen a reduction in U S delivery related support request of more than 15%.
Carol Tom: To further support our healthcare strategy, this year we've opened seven dedicated healthcare facilities in Europe and in the U.S. And the acquisition of BOMI, further strengthen our healthcare footprint in Europe and Latin America. Since 2020, we have more than doubled our healthcare distribution space globally. These efforts and more are keeping us on track to reach our $10 billion healthcare revenue target this year, and we're just getting started.
Speaker 3: transcript
Speaker 3: We are also harnessing our data to deliver more agile and targeted products that meet our customers.
We're also harnessing our data to deliver more agile and targeted products that meet our customers' needs.
Speaker 3: transcript
Speaker 3: Our latest example is a new product we call Hyperlocal, which leverages the footprint of our U.S. facility.
Our latest example is a new product, we call hyper local which leverages the footprint of our U S facilities.
Speaker 3: transcript
Speaker 3: to provide select customers with a fast next day delivery option within a metro area.
To provide select customers with a fast next day delivery option within a metro area.
Speaker 3: transcript
Speaker 3: HyperLocal enables us to capture new profitable B2C and B2B volumes and was launched in October as a new service offering.
Hyper local enables us to capture new profitable BTC and <unk> volume and was launched in October as a new service offering.
Carol Tom: Turning to Returns. With the explosion of e-commerce demand, our returns business has been a key area of growth over the last several years. What we've seen over this time is an increasing desire on the part of both our customers and our recipients for a frictionless and simple end-to-end returns experience. We've been building out this experience, but to help us get our faster, we just entered into an agreement to acquire our happy returns, a technology-focused company that enables frictionless, no-box, no-label return.
Let me quickly touch on DAP, our digital access program.
Speaker 3: transcript
Speaker 3: Let me quickly touch on DAP, our digital access program. We are continuing to grow SMB volume with DAP. In the third quarter, we launched 10 new partners in time for peace.
We are continuing to grow F&B volume with that.
In the third quarter, we launched 10, new partners in time for peak and.
Speaker 3: transcript
Speaker 3: In the first nine months of this year, we generated $2.1 billion in DAP revenue, and we expect to deliver $3 billion in DAP revenue for the year.
In the first nine months of this year, we generated $2 $1 billion in GAAP revenue and we expect to deliver $3 billion and DAP revenue for the year.
Carol Tom: By combining happy returns, easy digital experience and established drop-off points, with UPS's small-package network and footprint of close to 5200 UPS store locations. Box free, label-free returns will soon be available at more than 12,000 convenient locations in the US. But our plans for returns don't stop at convenience. For our enterprise retail customers, we plan to provide a consolidated return solution that will lower their cost and improve their experience. And for UPS, happy returns expands our returns portfolio with an innovative solution that will generate profitable B2B volume and helps drive pickup and delivery destiny.
Let's turn to innovation driven.
Speaker 3: transcript
Speaker 3: UPS has been a technology company since our founding and we are adding transformative technology in our operations that will increase efficiency and improve the
<unk> has been a technology company since our founding and we.
We're adding transformative technology and our operation that will increase efficiency and improve the employee experience.
Speaker 3: transcript
Speaker 3: Smart Package, Smart Facility, our RFID solution, is one way we're driving efficiency. And I'm pleased that we are wrapping up our Phase 1 rollout in our U.S. facility.
Smart package smart facility, our RFID solutions is one way, we are driving efficiency and I'm pleased that we are wrapping up our phase one rollout in our U S facility.
Speaker 3: transcript
Speaker 3: The improvements we are seeing in our preload operations are even better than we expected.
The improvements we are seeing in our preload operations are even better than we expected with nearly 200 of our building in seeing this low rates in one in 2500 packages are better.
Speaker 3: transcript
Speaker 3: with nearly 200 of our buildings seeing this load rate in one in 2,500 packages or better. Deployment of phase two is already underway, which equips our package cards with RFID readers.
Deployment of phase II is already underway, which equips, our packaged cars with RFID readers.
Speaker 3: transcript
Speaker 3: Over time, this will allow us to virtually scan smart packages during pickup and eliminate delivery scans during bulk delivery stops.
Over time, this will allow us to virtually scan smart packages during pickup and eliminate delivery scans during bulk delivery staff.
Carol Tom: For us, customer first isn't just about growth. It's about meeting customer needs. To that end, we are continuing to improve the delivery experience, with the expansion of UPS delivery photo. 92% of our residential stops globally include a photo that shows exactly where the package was delivered. Not only does delivery photo provide peace of mind to recipient, but we get fewer calls about missing packages. With delivery photo, UPS has seen a reduction in US delivery related support requests of more than 15%.
Speaker 3: transcript
Speaker 3: both of which will enhance customer visibility and make our drivers more efficient.
Which will enhance customer visibility and make our drivers more efficient.
Speaker 3: transcript
Speaker 3: Another example of transformative technology is robotics. Specifically, starting at the.
Another example of transformative technology is robotics.
Typically starting a supply chain solution.
Speaker 3: transcript
Speaker 3: We are implementing robotic unload technology inside our trailers to unload packages more efficiently.
We are implementing robotics unload technology inside our trailers to among packages more efficiently.
Speaker 3: transcript
Speaker 3: These robots navigate the inside of a trailer and can unload multiple box types and sizes autonomously.
These robots navigate the inside of a trailer and can unload multiple box types and sizes autonomously.
Speaker 3: transcript
Speaker 3: Now it's still early days with this technology, but we are seeing many opportunities to further expand the use of robotics across our network.
It's still early days with this technology, but we are seeing many opportunities to further expand the use of robotics across our network.
Carol Tom: We are also harnessing our data to deliver more agile and targeted products that need our customers' needs. Our latest example is a new product we call hyperlocal, which leverages the footprint of our US facilities to provide select customers with a fast, next-day delivery option within a metro area. Hyperlocal enables us to capture new profitable B2C and B2B volume and was launched in October as a new service offering.
Speaker 3: transcript
Speaker 3: Turning to the fourth quarter, we are preparing for peace.
Turning to the fourth quarter, we are preparing for peak.
Speaker 3: transcript
Speaker 3: Over the past five years, our service during peak has been better than our closest competitor by an average of 310 basis points.
Over the past five years, our service during peak has been better than our closest competitor by an average of 310 basis points.
Speaker 3: transcript
Speaker 3: Service matters all the time, but especially at.
Service matters, all the time, but especially at peak so to prepare we are collaborating with customers on volume projections and the timing of their promotion.
Speaker 3: transcript
Speaker 3: So to prepare, we are collaborating with customers on volume projections and the timing of their promotion.
Speaker 3: transcript
Speaker 3: We will also leverage technology, like our network planning tools, to control how the volume comes in, utilize available capacity, and adjust the network to operate as efficiently as possible.
We will also leverage technology like our network planning tools to control how the volume comes in utilize available capacity and adjust the network to operate as efficiently as possible.
Carol Tom: Let me quickly touch on DAV by digital access program. We are continuing to grow SMB volume with DAV. In the third quarter, we launched 10 new partners in time for peace. In the first nine months of this year, we generated $2.1 billion in DAV revenue, and we expect to deliver $3 billion in DAV revenue for the year.
Speaker 3: transcript
Speaker 3: Regarding peak hiring, our people-led strategy enables greater flexibility to serve our customers during the holiday rush. For example, our experienced part-time employees can now become seasonal support drivers. This enables them to deliver packages using their own vehicles before or after their regular shift.
Regarding peak hiring our people that strategy enables greater flexibility to serve our customers. During the holiday Rush for example, our experienced part time employees and now become seasonal support driver.
This enables them to deliver packages using their own vehicles before or after the regular shifts.
Carol Tom: Let's turn to innovation driven. UPS has been a technology company since our founding, and we are adding transformative technology and our operations that will increase efficiency and improve the employee experience. Smart package, smart facility, our RFID solution is one way we're driving efficiency, and I'm pleased that we are wrapping up our Phase 1 rollout in our US facility. The improvements we are seeing in our preload operations are even better than we expected, with nearly 200 of our buildings seeing this low of rates in 1 in 2,500 packages or better.
Carol Tom: Both of which will enhance customer visibility and make our drivers more efficient. Another example of transformative technology is robotics, specifically starting a supply chain solution. We are implementing robotics unload technology inside our trailers to unload packages more efficiently. These robots navigate the inside of a trailer and can unload multiple box types and sizes autonomously. Now it's still early days with this technology, but we are seeing many opportunities to further expand the use of robotics across our network.
Speaker 3: transcript
Speaker 3: In addition, you plan to hire over 100,000 season employees to help process and deliver holiday volumes. This year, we've made it even easier and faster to apply for a job as we shorten the digital process to less than 20 minutes, fulfilling out an online application to receiving a job offer.
In addition, do you plan to hire over 100000 seasonal employees to help process and deliver holiday volume.
This year, we've made it even easier and faster to apply for a job.
We've shortened the digital process to less than 20 minutes from filling out an online application to receiving a job offer.
Speaker 3: transcript
Speaker 3: Regarding our financial outlook, we made changes based on what we are seeing in the market. We still expect to have healthy peak volume in the fourth quarter, but based on what appears to be slowing demand in all business segments, we are revising our guidance accordingly. Brian will share more detail in a moment.
Regarding our financial outlook, we made changes based on what we are seeing in the market. We still expect to have healthy peak volume in the fourth quarter, but based on what appears to be slowing demand in all business segments. We are revising our guidance accordingly.
Brian will share more detail in a moment.
Speaker 3: transcript
Speaker 3: Back in January , I said that 2023 would be a year of resilience, and it has been.
Back in January I said that 2023 would be a year of resilience and it has been.
Speaker 3: transcript
Speaker 3: Our founder Jim Casey said, determined people working together can do anything.
Our founder Jim Casey said determined people working together can do anything.
Speaker 3: transcript
Speaker 3: During the year, we accelerated the deployment of smart package, smart facility, and made strategic acquisitions to grow in the best parts of the market. We delivered a labor agreement that provides certainty for the next five years. We are operating with great speed and agility, controlling what we can control, and we are staying on strategy.
During the year, we accelerated the deployment of smart package smart facility and make strategic acquisitions to grow in the best parts of the market. We delivered a labor agreement that provides certainty for the next five years we.
We are operating with great speed and agility controlling what we can control and we are staying on strategy.
Speaker 3: transcript
Speaker 3: But that, thank you for listening, and now I'll turn the call over to Briar.
With that thank you for listening and now I will turn the call over to Brian.
Speaker 2: transcript
Speaker 2: Thanks, Carol, and good morning. In my comments today, I'll cover four areas. I'll start with the macro, followed by our third quarter results.
Thanks, Carol and good morning in my comments today I'll cover four areas I'll start with the macro followed by our third quarter results.
Speaker 2: transcript
Speaker 2: Next, I'll cover cash and shareholder returns. Then I'll provide detail around our updated guidance. The macro environment in
Carol Tom: Turning to the fourth quarter, we are preparing for peak. Over the past five years, our service during peak has been better than our closest competitor by an average of 310 basis points. Service matters all the time, but especially at peak. So to prepare, we are collaborating with customers on volume projections and a timing of their promotion. We will also leverage technology like our network planning tools to control how the volume comes in, utilize available capacity and adjust the network to operate as efficiently as possible.
Next I'll cover cash and Shareowner returns, then I'll provide detail around our updated guidance.
The macro environment in the third quarter was challenging.
Speaker 2: transcript
Speaker 2: The weakness we saw in the second quarter continued into the third quarter, especially in Asia and Europe .
The weakness we saw in the second quarter continued into the third quarter, especially in Asia and Europe.
Speaker 2: transcript
Speaker 2: Real exports and industrial production moved lower due to falling demand and global consumer conditions did not.
Real exports and industrial production moves lower due to falling demand and global consumer conditions did not significantly change.
Speaker 2: transcript
Speaker 2: In the US, we face tough conditions due to several facts.
In the U S. We faced tough conditions due to several factors to begin the volume diversion, we experienced in the second quarter continued into the third quarter, which led to more volume diversions than we anticipated.
Speaker 2: transcript
Speaker 2: to begin, the volume diversion we experienced in the second quarter continued into the third quarter, which led to more volume diversion.
Speaker 2: transcript
Speaker 2: Next, some customers that diverted waited until our Teamster contract was fully ratified in September before returning volume to our network.
Next some customers that diverted waited until our teamster contract was fully ratified in September before returning volume to our network.
Carol Tom: Regarding peak hiring, our people that's strategy enables greater flexibility to serve our customers during the holiday rush. For example, our experience part-time employees and now become seasonal support drivers. This enables them to deliver packages using their own vehicles before or after their regular ship. In addition, you plan to hire over 100,000 seasonal employees to help process and deliver holiday volume. This year, we've made it even easier and faster to apply for a job, as we shorten the digital process to less than 20 minutes, fulfilling out an online application to receiving a job offer.
Speaker 2: transcript
Speaker 2: And lastly, we incurred higher labor costs associated with the new contract and added headcount earlier than normal to ramp up for peak. So we can ensure we maintain our industry leading service level.
And lastly, we incurred higher labor costs associated with the new contract and added head count earlier than normal to ramp up for peak. So that we can ensure we maintain our industry leading service levels.
Through the end of the quarter, we adjusted our integrated network to support our customers' needs.
Speaker 2: transcript
Speaker 2: Through the end of the quarter, we adjusted our integrated network to support our customers.
Speaker 2: transcript
Speaker 2: Manage cost and state focused on bringing volume back into our network.
Managed costs and stayed focused on bringing volume back into our network.
Speaker 2: transcript
Speaker 2: Looking at our financial results, for the quarter, consolidated revenue was $21.1 billion, down 12.8 percent from last year.
Looking at our financial results for the quarter consolidated revenue was $21 1 billion.
<unk> 12, 8% from last year.
Speaker 2: transcript
Speaker 2: Consolidated operating profit was $1.6 billion down 48.7% compared to the same period last year. Consolidated off.
Consolidated operating profit was $1 6 billion.
Carol Tom: Regarding our financial outlook, we made changes based on what we are seeing in the market. We still expect to have healthy peak volume in the fourth quarter, but based on what appears to be slowing demand in all business segments, we are revising our guidance accordingly. Brian will share more detail in a moment.
Down 48, 7% compared to the same period last year.
Consolidated operating margin was seven 7%.
Speaker 2: transcript
Speaker 2: For the third quarter, the Looted Erings per share was $1.57, Goudd 47.5% from the same period last year.
For the third quarter diluted earnings per share was $1 57 down 47, 5% from the same period last year.
Carol Tom: Back in January, I said that 2023 would be a year of resilience and it has been. Our founder, Jim Casey, said, determined people working together can do anything. During the year, we accelerated the deployment of smart package smart facility and made strategic acquisitions to grow in the best parts of the market. We delivered a little bit of agreement that provides certainty for the next five years. We are operating with great speed and agility, controlling what we can control, and we are staying on strategy.
Now, let's look at our business segments and U S. Domestic we knew the third quarter would be a challenge and it was due to our labor negotiations higher costs in a dynamic economic backdrop.
Speaker 2: transcript
Speaker 2: In U.S. domestic, we knew the third quarter would be a challenge, and it was, due to our labor negotiations, higher costs, and a dynamic economic backdrop.
Speaker 2: transcript
Speaker 2: As we discussed our last call, we ended the second quarter with average daily volume in June , down 12.2%.
As we discussed on our last call. We ended the second quarter with average daily volume in June down 12, 2%.
Speaker 2: transcript
Speaker 2: As contract negotiations became later and louder, we saw more volume diversion than we anticipated.
As contract negotiations became later and louder, we saw more volume diversion than we anticipated.
Speaker 2: transcript
Speaker 2: August represented the low water mark when average daily volume was down 15.2% year-over-year.
August represented the low watermark with average daily volume was down 15, 2% year over year.
Brian Newman: But that, thank you for listening, and now I'll turn the call over to Brian. Thanks, Carol, and good morning.
Speaker 2: transcript
Speaker 2: Post ratification, we exit at the third quarter and half that way. And we are continuing to see our week over week volume levels improve despite a challenging retail backdrop.
Post ratification, we exited the third quarter at half that rate and we're continuing to see our week over week volume levels improved despite a challenging retail backdrop.
Brian Newman: In my comments today, I'll cover four areas. I'll start with the macro followed by our third quarter results. Next, I'll cover cash and share on our returns. Then I'll provide detail around our updated guidance.
Speaker 2: transcript
Speaker 2: In the U.S., in the third quarter, average daily volume was down 11.5 percent, and we estimate the impact of volume diversion reduced our volume by approximately 1.5 million packages per day.
In the U S. In the third quarter average daily volume was down 11, 5% and we estimate the impact of volume diversion reduced our volume by approximately $1 5 million packages per day.
Brian Newman: The macro environment in the third quarter was challenging. The weakness we saw in the second quarter continued into the third quarter, especially in Asia and Europe. Real exports and industrial production moved lower due to falling demand and global consumer conditions.
Speaker 2: transcript
Speaker 2: Moving to mix, in the third quarter we saw lower volumes across all industry sectors with the largest declines from retail and high tech.
Moving to mix in the third quarter, we saw lower volumes across all industry sectors with the largest declines from retail and high tech.
Speaker 2: transcript
Speaker 2: B2C average daily volume declined 13.4% compared to last year, and B2B average daily volume was down 9%.
<unk> average daily volume declined 13, 4% compared to last year and <unk> average daily volume was down 9% in.
Brian Newman: In the US, we faced tough conditions due to several factors. To begin, the volume diversion we experienced in the second quarter continued into the third quarter, which led to more volume diversion than we anticipated. Next, some customers that diverted waited until our teamster contract was fully ratified in September before returning volume to our network. Lastly, we incurred higher labor costs associated with the new contract and added headcount earlier than normal to wrap up for peak so we can ensure we maintain our industry leading service levels. Through the end of the quarter, we adjusted our integrated network to support our customers' needs, manage costs, and stay focused on bringing volume back into our network.
Speaker 2: transcript
Speaker 2: In the third quarter, B2B represented 44% of our volume, which was an increase of 120 basis points from a year ago.
In the third quarter <unk> represented 44% of our volume, which was an increase of 120 basis points from a year ago.
Speaker 2: transcript
Speaker 2: Also in the third quarter we continue to see customers shift volume out of the air onto the ground.
Also in the third quarter, we continued to see customers shift volume out of the air onto the ground.
Speaker 2: transcript
Speaker 2: total air average daily volume was down 15.8% year over year, with about half of the decline coming from our largest customer as anticipated. Ground average daily...
Total error average daily volume was down 15, 8% year over year with about half of the decline coming from our largest customer as anticipated.
Ground average daily volume was down 10, 7%.
Speaker 2: transcript
Speaker 2: In terms of customer mix, in the third quarter, FNB's including platforms made up 28.5% of our total US volume, an increase of 20 basis points year over year.
In terms of customer mix in the third quarter Smbs, including platforms made up 28, 5% of our total U S volume an increase of 20 basis points year over year.
Speaker 2: transcript
Speaker 2: For the quarter, U.S. domestic generator revenue of $13.7 billion down 11.1%.
For the quarter U S domestic generated revenue of $13 7 billion.
Brian Newman: Looking at our financial results for the quarter, consolidated revenue was $21.1 billion down 12.8% from last year. Consolidated operating profit was $1.6 billion down 48.7% compared to the same period last year. Consolidated operating margin was 7.7%. For the third quarter, the looted earnings per share was $1.57 down 47.5% from the same period last year.
Down 11, 1%.
Speaker 2: transcript
Speaker 2: Despite lower volume, we remain disciplined on revenue quality. In the third quarter, revenue per piece increased 2%.
Despite lower volume, we remain disciplined on revenue quality in the third quarter revenue per piece increased 2%.
Speaker 2: transcript
Speaker 2: Looking at the key drivers, the combination of strong base rates and improved customer and product mix increase the revenue per piece growth rate by 410.
Looking at the key drivers the combination of strong base rates and improved customer and product mix increased the revenue per piece growth rate by 410 basis points chain.
Speaker 2: transcript
Speaker 2: Changes in fuel prices decrease the revenue for peace growth rate by 100.
Changes in fuel prices decreased revenue per piece growth rate by 190 basis points.
Speaker 2: transcript
Speaker 2: The remaining 20 basis points of decline was given by multiple factors including package character.
The remaining 20 basis points of decline was driven by multiple factors, including packaged characteristics.
Brian Newman: Now let's look at our business segments. In US domestic, we knew the third quarter would be a challenge and it was due to our labor negotiations, higher costs, and a dynamic economic backdrop. As we discussed our last call, we ended the second quarter with average daily volume in June down 12.2%. As contract negotiations became later and louder, we saw more volume diverse than we anticipated. August represented the low water mark when average daily volume was down 15.2% year-over-year.
Speaker 2: transcript
Speaker 2: Turning to costs total expense was down 5.1% in the third quarter.
Turning to costs total expense was down five 1% in the third quarter.
Speaker 2: transcript
Speaker 2: Compensation and benefit decrease the total expense growth rate by around 50 basis points. Total union wage rates.
Compensation and benefits decreased the total expense growth rates by around 50 basis points.
It'll union wage rates were up 11, 5% in the third quarter, primarily driven by the contractual wage increase that went into effect on August one.
Speaker 2: transcript
Speaker 2: primarily driven by the contractual wage increase that went into effect on August 1st. Additionally, we...
Additionally, we began network preparations for peak.
Speaker 2: transcript
Speaker 2: Offsetting the total increase in compensation and benefits, we leveraged our total service plan and network planning tools to reduce total hours in the third quarter by 11.4%.
Offsetting the total increase in compensation and benefits, we leveraged our total service plan and network planning tools to reduce total hours in the third quarter by 11, 4%.
Brian Newman: Post ratification, we exited the third quarter half that way and we are continuing to see our week-over-week volume levels improved despite a challenging retail backdrop. In the US, in the third quarter average daily volume was down 11.5% and we estimate the impact of volume diversion reduced our volume by approximately 1.5 million packages per day. Moving to mix, in the third quarter we saw lower volumes across all industry sectors with the largest declines from retail and high tech.
Speaker 2: transcript
Speaker 2: We reduce the expense growth rate for purchase transportation by around 190 bases.
We reduced the expense growth rate for purchase transportation by around 190 basis points, primarily from lower volume levels and our continued optimization efforts.
Speaker 2: transcript
Speaker 2: primarily from lower volume levels and our continued optimization efforts. Lower fuel costs contributed 170 basis points.
Lower fuel cost contributed 170 basis points to the decrease in total expense growth rate.
Speaker 2: transcript
Speaker 2: The net of all other expense items and allocations reduce the expense growth rate by 100%.
The net of all other expense items and allocations reduce the expense growth rate by 100 basis points.
Speaker 2: transcript
Speaker 2: The U.S. domestic segment delivered $665 million in operating profit down 60.6% compared to the third quarter of 2022. An operating margin was 4.9%.
The U S domestic segment delivered $665 million in operating profit down 66% compared to the third quarter of 2022 and operating margin was four 9%.
Brian Newman: B2C average daily volume declined 13.4% compared to last year and B2B average daily volume was down 9%. In the third quarter, B2B represented 44% of our volume which was an increase of 120 basis points from a year ago. Also in the third quarter, we continued to see customers shift volume out of the air onto the ground. Total air average daily volume was down 15.8% year-over-year with about half of the decline coming from our largest customer.
Speaker 2: transcript
Speaker 2: Moving to our international segment, macro conditions were uneven in third quarter, with some regions of the world more challenged than us.
Moving to our international segment macro conditions were uneven in the third quarter with some regions of the world more challenged than others.
Speaker 2: transcript
Speaker 2: continued falling demand pressure day and in Europe consumers continue to contend with high inflation and tight finance.
Continued falling demand pressured Asia.
And in Europe consumers continued to contend with high inflation and tight financial conditions.
Speaker 2: transcript
Speaker 2: In response, we adjusted headcount and block hours in our global network to match changes in geographic
In response, we adjusted head count in block hours, and our global network to match changes in geographic demand.
Brian Newman: Interspanated. Ground average daily volume was down 10.7%. In terms of customer mix, in the third quarter, SMBs including platforms made up 28.5% of our total US volume, an increase of 20 basis points year over year. For the quarter, US domestic generator revenue of $13.7 billion, down 11.1%. Despite lower volume, we remain disciplined on revenue quality. In the third quarter, revenue per piece increased 2%. Looking at the key drivers, the combination of strong base rates and improved customer and product mix increased the revenue per piece growth rate by 410 basis points. Changes in fuel prices decreased the revenue per piece growth rate by 190 basis points. The remaining 20 basis points of decline was given by multiple factors including package characteristics.
Speaker 2: transcript
Speaker 2: In the quarter, International Total Average Daily Volume was down 6.6% You're over...
In the quarter International total average daily volume was down six 6% year over year.
Speaker 2: transcript
Speaker 2: Nearly three-quarters of the decline came from lower domestic average daily volume, which was down 9.1 percent, driven primarily by decline.
Nearly three quarters of the decline came from lower domestic average daily volume, which was down nine 1% driven primarily by declines in Europe.
Speaker 2: transcript
Speaker 2: On the export side, average Shelley volume declined 4.1% on a Euro-rear.
On the export side average daily volume declined four 1% on a year over year basis.
Speaker 2: transcript
Speaker 2: Looking at Asia, export average daily volume without eat percent.
Looking at Asia export average daily volume was down 8% in.
Speaker 2: transcript
Speaker 2: and export volume on the China to US lane, which is our most profitable lane, was down 10.3% year over year.
And export volume on the China to U S lean, which is our most profitable lane was down 10, 3% year over year.
Speaker 2: transcript
Speaker 2: One bright spot was the America's region. We're export average daily volume grew 4.7%. Led by Canada and Mexico, leveraging our cross-border ground surface.
One bright spot was the Americas region, where export average daily volume grew four 7% led by Canada, and Mexico, leveraging our cross border ground service.
Speaker 2: transcript
Speaker 2: In the third quarter, international revenue was $4.3 billion, which was down 11.1% from last year, due to the decline in volume, and a 1.4% reduction in revenue per piece. The decline...
In the third quarter International revenue was $4 3 billion.
Which was down 11, 1% from last year due to the decline in volume and a one 4% reduction in revenue per piece.
Brian Newman: Turning to costs, total expense was down 5.1% in the third quarter. Compensation and benefits decreased the total expense growth rate by around 50 basis points. Total union wage rates were up 11.5% in the third quarter, primarily driven by the contractual wage increase that went into effect on August 1st. Additionally, we began network preparations for peak. Offsetting the total increase in compensation and benefits, we leveraged our total service plan and network planning tools to reduce total hours in the third quarter by 11.4%.
The decline in revenue per piece was driven by several factors lower fuel surcharge revenue contributed 230 basis points to the revenue per piece growth rate decrease.
Speaker 2: transcript
Speaker 2: Lower fuel surcharge revenue contributed 230 basis points to the revenue per piece growth rate.
Speaker 2: transcript
Speaker 2: A reduction in demand-related surcharge revenue contributed 200 basis points to the decline.
The reduction in demand related surcharge revenue contributed 200 basis points to the decline.
Speaker 2: transcript
Speaker 2: Partially offsetting the decline, multiple factors increase the revenue per piece growth rate by 290 basis points, including strong base rates and
Partially offsetting the decline multiple factors increase the revenue per piece growth rate by 290 basis points, including strong base rates and a weaker U S dollar.
Speaker 2: transcript
Speaker 2: Moving to costs in the third quarter, total international cost was down $203 million. Primarily driven by lower fuel expense.
Moving to costs in the third quarter total international costs was down $203 million primarily.
Brian Newman: We reduced the expense growth rate for purchase transportation by around 190 basis points, primarily from lower volume levels and our continued optimization efforts. Lower fuel cost contributed 170 basis points to the decrease in total expense growth rate. The net of all other expense items and allocations reduced the expense growth rate by 100 basis points.
Primarily driven by lower fuel expense.
Speaker 2: transcript
Speaker 2: In response to lower demand, we adjusted our integrated network and cut costs, which included reducing international block hours by 13.9% compared to last year and reducing headcount in operations and overhead functions by a total of 2,300 positions.
In response to lower demand, we adjusted our integrated network and cut costs, which included reducing international block hours by 13, 9% compared to last year, and reducing head count and operations and overhead functions by a total of 2003 hundred positions.
Brian Newman: The U.S, domestic segment delivered $665 million in operating profit down 60.6% compared to the third quarter of 2022 and operating margin was 4.9%.
Speaker 2: transcript
Speaker 2: And we did all of this while continuing to deliver excellent service to our customers.
And we did all of this while continuing to deliver excellent service to our customers.
Speaker 2: transcript
Speaker 2: Operating profit in the international segment was $675 million. Down $329 million year-over-year, which included a $98 million reduction in demand-related search archery.
Operating profit in the International segment was 675 million.
Down $329 million year over year, which included a $98 million reduction in demand related surcharge revenue.
Brian Newman: Moving to our international segment, macro conditions were uneven in third quarter with some regions of the world were challenged than others. Continued falling demand pressured Asia and in Europe, consumers continued to contend with high inflation in tight financial conditions. In response, we adjusted headcount and block hours in our global network to match changes in geographic demand. In the quarter, international total average daily volume was down 6.6% year-over-year. Nearly three quarters of the decline came from lower domestic average daily volume, which was down 9.1% driven primarily by declines in Europe.
Speaker 2: transcript
Speaker 2: Operating margin in the third quarter was 15.8%. Now looking at supply chain solutions, in the third quarter, revenue was $3.1 billion, down $854 million year over year.
Operating margin in the third quarter was 15, 8% now.
Now looking at supply chain solutions in the third quarter revenue was $3 1 billion down.
<unk> $854 million year over year.
Speaker 2: transcript
Speaker 2: Looking at the key drivers, let's start with Ford. In international air freight, softer global demand and lower volume resulted in a decline in revenue and operating profit.
Looking at the key drivers, let's start with forward and international Airfreight softer global demand and lower volume resulted in a decline in revenue and operating profit.
Speaker 2: transcript
Speaker 2: On the ocean side, demand flip positive to be driven by the retail sector and generated volume growth. However, excess market capacity, pressured revenue and operating profit.
On the ocean side demand flip positive driven by the retail sector and generated volume growth.
However, excess market capacity pressured revenue and operating profit it.
Brian Newman: On the export side, average daily volume declined 4.1% on a year-over-year basis. Looking at Asia, export average daily volume was down 8%, and export volume on the China to U.S, lane, which is our most profitable lane, was down 10.3% year-over-year. One bright spot was the America's region, where export average daily volume grew 4.7%, led by Canada and Mexico, leveraging our cross-border ground service. In the third quarter, international revenue was 4.3 billion dollars, which was down 11.1% from last year, due to the decline in volume and a 1.4% reduction, in revenue per piece.
Speaker 2: transcript
Speaker 2: In response to the dynamic forwarding market, we cut operating costs.
In response to the dynamic forwarding market, we cut operating costs.
Speaker 2: transcript
Speaker 2: Within forwarding, our truckload brokerage unit continued to face pressure from excess capacity in the market, which drove revenue and operating profit down.
Within forwarding, our truckload brokerage unit continued to face pressure from excess capacity in the market, which drove revenue and operating profit down.
Logistics delivered revenue and operating profit growth.
Speaker 2: transcript
Speaker 2: In the third quarter, supply chain solutions generated operating profit of $275 million in an operating margin of $8 billion.
In the third quarter supply chain solutions generated operating profit of $275 million and an operating margin of eight 8%.
Speaker 2: transcript
Speaker 2: Walking through the rest of the income statement, we had $199 million of interest expense. Our other pension income was
Walking through the rest of the income statement, we had $199 million of interest expense.
Our other pension income was $66 million and our effective tax rate for the third quarter was 12, 6%, which benefited from certain discrete items, including tax credits and global audit resolutions.
Speaker 2: transcript
Speaker 2: and our effective tax rate for the third quarter was 12.6%, which benefited from certain discrete items, including tax credits and global audit resolutions. Now let's turn to...
Brian Newman: The decline in revenue per piece was driven by several factors. Lower fuel surcharge revenue contributed 230 basis points to the revenue per piece growth rate decreased. A reduction in demand-related surcharge revenue contributed 200 basis points to the decline. Partially offsetting the decline, multiple factors increased the revenue per piece growth rate by 290 basis points, including strong base rates and a weaker US dollar. Moving to costs, in the third quarter total international cost was down $203 million, primarily driven by lower fuel expense.
Now, let's turn to cash and shareowner returns year to date, we generated $7 $8 billion in cash from operations and free cash flow was $4 9 billion.
Speaker 2: transcript
Speaker 2: Year to date, we've generated $7.8 billion in cash from operations, and free cash flow was $4.9 billion.
Speaker 2: transcript
Speaker 2: So far this year, UPS has paid $4 billion in dividends, and we've completed $2.25 billion in share buyback.
And so far this year Ups's paid $4 billion in dividends and we've completed 225 billion in share buybacks.
Now I will share a few comments about our outlook, we expect 2023 to be a bumpy year and it has been.
Speaker 2: transcript
Speaker 2: Now we'll share a few comments about our outlook. We expected 2023 to be a bumpy year, and it hasn't.
Speaker 2: transcript
Speaker 2: We've navigated record high inflation, rising interest rates, disruptions in China, a war in Eastern Europe , now a humanitarian crisis in Israel and Gaza, and the disruption around our U.S.
We've navigated record high inflation.
Rising interest rates disruptions in China.
Brian Newman: In response to lower demand, the adjusted our integrated network and cut costs, which included reducing international block hours by 13.9% compared to last year, and reducing headcount in operations and overhead functions by a total of 2,300 positions. And we did all of this while continuing to deliver excellent service to our customers. Operating profit in the international segment was $675 million, down $329 million year over year, which included a $98 million reduction in demand-related surcharge revenue. Operating margin in the third quarter was 15.8%.
Warren Eastern Europe, now a humanitarian crisis in Israel in Gaza and.
And the disruption around our U S labor negotiations.
Speaker 2: transcript
Speaker 2: Through all of this, we remain focused on controlling what we can control, and are continuing to adjust the network to match volume levels and deliver industry-leading service to our...
Through all of this we remain focused on controlling what we can control.
And are continuing to adjust the network to match volume levels and deliver industry, leading service to our customers.
Speaker 2: transcript
Speaker 2: Since our last earnings call, the global demand environment has slowed and macroeconomic...
Since our last earnings call the global demand environment has slowed and macroeconomic conditions remain challenging.
Speaker 2: transcript
Speaker 2: As a result, we've lowered our full year guidance and have provided a range to reflect the uncertainty in the market.
As a result, we have lowered our full year guidance and have provided a range to reflect the uncertainty in the market.
Speaker 2: transcript
Speaker 2: We now expect a solidated revenue to be between $91.3 and $92.3 billion, and consolidate its operating margin to be between 10.8 and 11.3%. Let me walk you through our assumptions for the guidance range. In the U.S.
We now expect consolidated revenue to be between 91, three and $92 3 billion.
Brian Newman: Now looking at supply chain solutions, in the third quarter revenue was $3.1 billion, down $854 million year over year. Looking at the key drivers, let's start with forward, in international air freight, softer global demand, and lower volume resulted in a decline in revenue and operating profit. On the ocean side, demand flip positive driven by the retail sector and generated volume growth, however excess market capacity pressured revenue and operating profit. In response to the dynamic forwarding market, we cut operating costs.
And consolidated operating margin to be between $10 eight and 11, 3%.
Let me walk you through our assumptions for the guidance range in.
In the U S. We are winning back volume at a rapid pace, but we've also seen demand softness due to several factors with many of our customers who did not divert.
Speaker 2: transcript
Speaker 2: But we've also seen demand softness due to several factors with many of our customers who did not.
Speaker 2: transcript
Speaker 2: Additionally, all consumer spending has been resilient in 2023. Headwinds are mounting for the consumer in the fourth quarter.
Additionally, while consumer spending has been resilient in 2023 headwinds are mounting for the consumer in the fourth quarter.
Speaker 2: transcript
Speaker 2: And looking at estimates for holiday retail sales this year, increases range from over 4% to 12%.
And looking at estimates for holiday retail sales this year increases.
Brian Newman: Within forwarding, our truckload brokerage unit continued to face pressure from excess capacity in the market, which drove revenue and operating profit down. Logistics delivered revenue and operating profit growth. In the third quarter, supply chain solutions generated operating profit of $225 million in an operating margin of 8.8%. Walking through the rest of the income statement, we had $199 million of interest expense. Our other pension income was $66 million, and our effective tax rate for the third quarter was 12.6%, which benefited from certain discrete items, including tax credits and global audit resolutions.
Increases range from over 4% to 12%.
Speaker 2: transcript
Speaker 2: Moving to international, a further downturn in exports and lower consumer spending in some of the largest European markets, including Germany and the U.K., are negatively impacting volume.
Moving to international a further downturn exports and lower consumer spending and some of the largest European markets, including Germany, and the UK are negatively impacting volume.
Speaker 2: transcript
Speaker 2: and exports on our most profitable trade lane, which is China to the US, are not improving at the pace we had expected. Finally and forwarding, the air and ocean capacity has increased.
And exports on our most profitable trade lane, which is China to the U S are not improving at the pace we had expected.
Finally in forwarding air and Ocean capacity has increased which is putting additional downward pressure on market rates. In fact, an ocean. There was extreme overcapacity versus demand in the market and the forward demand outlook in the fourth quarter remains weak.
Speaker 2: transcript
Speaker 2: In fact, in ocean, there is extreme overcapacity versus demand in the market and the forwarding demand outlook in the fourth quarter.
Speaker 2: transcript
Speaker 2: Turning to capital allocation for the full year, capital expenditures are still expected to be about $5.3 billion.
Turning to capital allocation for the full year.
Brian Newman: Now let's turn to cash and share on our returns. The year to date, we generated $7.8 billion in cash from operations, and free cash flow was $4.9 billion. And so far this year, UPS has paid $4 billion in dividends, and we've completed $2.25 billion in share buybacks.
Capital expenditures are still expected to be about $5 $3 billion. We are still planning to pay out around $5 4 billion dividends in 2023 subject to board approval.
Speaker 2: transcript
Speaker 2: We are still planning to pay out around $5.4 billion of dividends in 2023, subject to board.
Speaker 2: transcript
Speaker 2: We have repaid $1.6 billion in debt this year as a plan, and expect to repay an additional 700 million euros of debt in the fourth quarter.
We have repaid $1 6 billion in debt this year as planned and expect to repay an additional 700 million euros of debt in the fourth quarter.
Brian Newman: Now we'll share a few comments about our outlook. We expected 2023 to be a bumpy year and it has been. We've navigated record high inflation, rising interest rates, disruptions in China, a war in Eastern Europe, now a humanitarian crisis in Israel and Gaza, and the disruption around our U.S, labor negotiations. Through all of this, we've remained focused on controlling what we can control, and are continuing to adjust the network to match volume levels and deliver industry-leading service to our country, customers. Since our last earnings call, the global demand environment has slowed and macroeconomic conditions remain challenging. As a result, we've lowered our full year guidance and have provided a range to reflect the uncertainty in the market.
Speaker 2: transcript
Speaker 2: We now expect $2.25 billion in share buybacks in 2023, which we have already...
We now expect 225 billion in share buybacks in 2023, which we have already completed.
Speaker 2: transcript
Speaker 2: In the fourth quarter, we are redeploying cash back into the business for growth initiatives such as strategic acquisitions to drive shareholder value.
In the fourth quarter, we are redeploying cash back into the business for growth initiatives, such as strategic acquisitions to drive shareowner value.
Speaker 2: transcript
Speaker 2: And lastly, we expect the tax rate for the full year to be approximately 22.
And lastly, we expect the tax rate for the full year to be approximately 22%.
Speaker 2: transcript
Speaker 2: In closing, while navigating a very challenging macro environment, we remain focused on the job that he...
In closing, while navigating a very challenging macro environment, we remain focused on the job at hand.
Speaker 2: transcript
Speaker 2: For the past five years, we have held the record at the industry leader in service during peak.
For the past five years, we have held the record as the industry leader in service during peak, we intend to do it again this year.
Speaker 2: transcript
Speaker 2: Thank you. And operator, please open the lines.
And operator, please open the lines.
Yes.
Brian Newman: We now expect solidated revenue to be between $91.3 and $92.3 billion and consolidated operating margin to be between 10.8 and 11.3%. Let me walk you through our assumptions for the guidance range. In the U.S., we are winning back volume at a rapid pace, but we've also seen demand softness due to several factors with many of our customers who did not divert. Additionally, all consumer spending has been resilient in 2023. Headwinds are mounting for the consumer in the fourth quarter.
Yes.
David we're ready for our first question Mr. <unk>.
Speaker 4: transcript
Speaker 4: We'll begin the question and answer period and our first question will come from the line of Chris Weatherby of Citigroup. Please go ahead. Hey, thanks. Good morning, guys. Maybe you'd start on the guidance.
We will begin the question and answer period. Our first question will come from the line of Chris Wetherbee of Citigroup. Please go ahead.
Hey, Thanks, good morning, guys.
Maybe you can start on the guidance and specifically for the fourth quarter. So I think it implies a pretty meaningful step up in operating profit and we understand that I'm guessing adv, probably as a significant.
Speaker 4: transcript
Speaker 4: it implies a pretty meaningful step up in operating profit. We understand that, you know, I'm guessing eight.
Brian Newman: And looking at estimates for holiday retail sales this year, increases range from over 4% to 12%. Moving to international, a further increase in sales. Other downturn exports and lower consumer spending in some of the largest European markets, including Germany and the UK, are negatively impacting volume. And exports on our most profitable trade lane, which is China to the U.S., are not improving at the pace we had expected. Finally and forwarding, the air and ocean capacity has increased, which is putting additional downward pressure on market rates. In fact, in ocean, there is extreme over capacity versus demand in the market. And the forwarding demand outlook in the fourth quarter remains weak.
With that improvement in the operating profit how low it was in the third quarter, but maybe you could help us bridge from how we're going to get from the third quarter, which obviously was quite challenged to what is a significant improvement sequentially.
Speaker 4: transcript
Speaker 4: operating profit during how low it was in the third quarter, but maybe you could help us bridge from how we're going to get from the third quarter, which obviously was quite challenged to what is a significant improvement.
In that context, maybe if you could give us that help us with what October Adv look back on the domestic side I think that's a very important numbers kind of curious if you can help us with that too.
Speaker 4: transcript
Speaker 4: October ADV look like on the domestic side, I think that's a very important...
Speaker 2: transcript
Speaker 2: Sure happy to Chris Good morning. So if you look at the bridge, I'll take the low end from Q3, we put posted $665 million in operating profit. To get the low end of the guide, it would require about $800 million in profit. The two biggest drivers of that are volume and revenue quality. The productivity that the teams are generating, Nando in the US, is offsetting the labor contract step up because you'll realize we have three months in the third, fourth quarter and we had two months of the new labor contract in the second. Your question on volume as we think about volume and revenue quality, those two alone provide a majority of the 800 step up.
Sure happy to Chris Good morning, So if you look at the bridge.
I'll take the low end from Q3, we put posted $665 million in operating profit to get to the low end of the guide it would require about $800 million in profit. The two biggest drivers of that are volume and revenue quality.
Brian Newman: Turning to capital allocation for the full year, capital expenditures are still expected to be about $5.3 billion. We are still planning to pay out around $5.4 billion dividends in 2023, subject to board approval. We have repaid $1.6 billion in debt this year as planned, and expect to repay an additional 700 million euros of debt in the fourth quarter. We now expect $2.25 billion in share buybacks in 2023, which we have already completed.
The productivity that the teams are generating nando and the U S is offsetting the labor contract step up because you'll have you'll realize we have three months in the third and fourth quarter and we had two months of the new labor contract and the second question on volume as we think about volume and revenue quality. Those two alone provide a majority of the 800 step up but if you think about where.
Speaker 2: transcript
Speaker 2: But if you think about where we were in August and where we are in October , the momentum is increasing. We had a low water mark, as I mentioned, and the prepared remarks down 15% in terms of ADV volume in August . That translates to around 16 million pieces from an ADV perspective.
We were in August and where we are in October.
Momentum is increasing we had a low watermark as I mentioned in the prepared remarks down 15% in terms of Adv volume in August that translates to around 16 million pieces from an Adv perspective, that's actually in October we're seeing 19 million pieces. So we've seen that step up I went back Chris and looked at last year and the.
Brian Newman: In the fourth quarter, we are redeploying cash back into the business for growth initiatives such as strategic acquisitions to drive share owner value. And lastly, we expect a tax rate for the full year to be approximately 22%.
Speaker 2: transcript
Speaker 2: That's actually in October , we're seeing 19 million pieces. So we've seen that step up. I went back Chris and looked at last year and the August October step up was in 1.5 million pieces. This year, the August October step up is 2.7 million pieces. So from a glide path and a trajectory, we're seeing momentum. The absolute levels are coming up and that's what led to the guide.
Brian Newman: In closing, while navigating a very challenging macro environment, we remain focused on the job enhanced. For the past five years, we have held the record as the industry leader in service during peak. We intend to do it again this year.
August October step up was a $1 5 million pieces. This year. The August October step up is $2 7 million pieces. So from a glide path on a trajectory we're seeing momentum the absolute levels are coming up and that's what led to the guide.
Unknown Executive: Thank you, and operator, please open the line. We will begin the question and answer period, as to what is a significant improvement sequentially. And in that context, maybe if you give us a help with what October or EDV looked like on the domestic side, I think there's a very important numbers kind of curious. We can help us with that, too. Sure, happy to, Chris, good morning. So if you look at the bridge, I'll take the low end from Q3.
Okay. Thank you.
Our next question will come from the line of Allison Pollinium of Wells Fargo. Please go ahead.
Speaker 5: transcript
Speaker 5: Our next question will come from the line of Alison Polinic of Wells Fargo. Please go ahead. Hi, good morning. I just want to go back to the comments on the recapture trends. I think you mentioned it really started in September in terms of that recapture rate. Is that like a huge acceleration in terms of what you're seeing in October ? Is it from that recapture? And then also related to that, you know, is there any cost associated with that volume you're recapturing today?
Hi, Good morning, just wanted to go back to the comments on the recapture trends I think you've mentioned it really starting in September in terms of that recapture rate.
Is that like a huge acceleration in terms of what youre seeing in October or is it from that recapture and then also related to that is there any cost associated with that is all you might youre recapturing today. Thanks.
Speaker 3: transcript
Speaker 3: Well, we're really pleased with how we're capturing volume back in our business. We have recaptured over 600,000 pieces per day of the volume that was lost, and I will say 50% of that recapture is coming from our largest competitor. The recapture continues day by day, but it's not just about recapturing what we lost, it's about growing new business. You may recall, Allison, at the end of the second quarter, we said we had about a $7 billion pipeline of new business.
Well, we're really pleased with how we're capturing volume back in our business. We have recaptured over 600000 cases per day of the volume that was lost and I will say, 50% of that recapture is coming from our largest competitor there or capture continue it's a day by day, but it's not just about recapturing.
What we lost its about growing new business.
<unk> recall Allison at the end of the second quarter. We said, we had about a $7 billion pipeline of new business. Today, we've won about 25% of that pipeline now that $7 billion is an annualized number so all of those packages and volume hasn't come into the network yet it will come in over the next year I couldn't be more pleased with how.
Speaker 3: transcript
Speaker 3: Today we want about 25% of that pipeline. Now that $7 billion is an annualized number, so all those packages and volume have a comment to the network yet. It will come in over the next year, but I couldn't be more pleased with how our sales team is performing, and new accounts and winning back volume that deferred.
Unknown Executive: We put posted $665 million in operating profit to get the low end of the guide. It would require about $800 million in profit. The two biggest drivers of that are volume and revenue quality. The productivity that the teams are generating, Nando in the U.S, is offsetting the labor contract step up because you'll realize we have three months in the third, fourth quarter, and we had two months of the new labor contract in the second.
Our sales team is performing and winning new accounts and winning back volume that department.
Got it and then just as a follow up to the recapture of any cost associated with that recapture that you get you have to make.
Speaker 5: transcript
Speaker 5: Got it. And just for the follow-up, is the recapture, any costs associated with that recapture that you have to make?
Speaker 3: transcript
Speaker 3: There's no material cost associated with the recapture. Customers are coming back because of our superior service. Great.
There's no material cost associated with the recapture customers are coming back because of our superior service.
Great. Thank you, yes, yes.
Speaker 1: transcript
Speaker 1: Our next question will come from the line of David Vernon of Bernstein. Please go ahead.
Our next question will come from the line of David Vernon of Bernstein. Please go ahead.
Unknown Executive: Your question on volume, as we think about volume and revenue quality, those two alone provide a majority of the 800 step up. But if you think about where we were in August and where we are in October. The momentum is increasing. We had a low watermark, as I mentioned in the prepared remarks, down 15% in terms of ADV volume in August. That translates to around 16 million pieces from an ADV perspective.
Speaker 6: transcript
Speaker 6: Hey, thanks for taking the question, guys. So Brian , you mentioned the 800 million step up. That's incremental, sequential from 3Q to 4Q. I just wanted to make sure that I heard that correctly. That's the low end of your guidance range assumption? That's right.
Hey, Thanks for taking the question guys. So so Brian you mentioned, the 800 million step up thats incremental sequential from from from.
<unk> I just wanted to make sure that I heard that correctly that the low end of your guidance range assumption that's all.
Alright, Dave Okay, and then maybe more bigger picture right as we think about the exit rate kind of implied in the guide I think it works out to something like down 20% year over year in EBIT and how do we think about that build back in 2024.
Speaker 6: transcript
Speaker 6: Okay, and then maybe more bigger picture rate is we think about the exit rate kind of implied in the guide. I think it works out to something like, you know, down 20% your rear and even.
Unknown Executive: That's actually in October, we're seeing 19 million pieces. So we've seen that step up. I went back, Chris, and looked at last year, and the August October step up was in 1.5 million pieces. This year, the August October step up is 2.7 million pieces. So from a glide path and a trajectory, we're seeing momentum, the absolute levels are coming up, and that's what led to the guide.
Speaker 6: transcript
Speaker 6: How do we think about that build back in 2024?
Speaker 6: transcript
Speaker 6: You know, the front half, obviously, you have inflation, but you've got the GRI to offset. Should we be expecting that sort of, you know, second derivative rate of change to slowly get better and then snap back? Or does it get, you know, meaningfully better in sort of 1Q2Q? How do we think about the shape of 2024 and how it's stepping up to recover in the domestic market?
The front half, obviously, you have inflation, but you've got the <unk> upside should we be expecting that sort of secondary or at a rate of change to slowly get better and then snap back or does it get.
Meaningfully better than sort of <unk>, how do we think about the shape of 2024, and how it's stepping up to recover in the domestic margin side. So two big pieces of sort of forward momentum. Dave one is the exit rate on volume Carol just talked about the win back and also the pipeline of new business, so going into next year.
Unknown Executive: Okay, thank you. Our next question will come from the line of Alice and Poliniac of Wells Fargo. Please go ahead. Hi, good morning. I just want to go back to the comments on the recapture trends. I think you mentioned it really starting in September in terms of that recapture rate. Is that like a huge acceleration in terms of what you're seeing in October? Is it from that recapture? And then also related to that, you know, is there any cost associated with that volume you're recapturing today?
Speaker 2: transcript
Speaker 2: So two big pieces of sort of forward momentum. Dave, one is the exit rate on volume. Carol just talked about the wind back and also the pipeline of new business. So going in the next year, getting back on level footing with a system that has higher ADD will help us certainly from a cost and margin perspective. The revenue per piece, we announced the 5.9% GRI, so that'll be coming in. We talked to you recently about the cost overhang of the contract. That goes from August to August . So I would tell you from a shape, certainly the first half of the year will be more challenged than the back half of the year. Back half of the year we get into a two to three year glide path with lower inflation per year. And then so pricing and productivity can help expand the margins. But those are the pluses and minuses as we look into 24. Obviously we'll go into a lot more detail March 26 when we get together with you all for our next investor day.
Getting back on level footing with a system that has higher Adv will help us certainly from a cost and margin perspective.
<unk> revenue per piece, we announced a five 9% <unk> so that'll be coming in we talked to you recently about the cost overhang of the contract that goes from August to August. So I would tell you from a shape certainly the first half of the year will be more challenged than the back half of the year back half of the year, we get into two to three year glide that with lower inflation per year and then.
Unknown Executive: Thanks. Well, we're really pleased with how we're capturing volume back in our business. We have recaptured over 600,000 pieces per day of the volume that was locked, and I will say 50% of that recapture is coming from our largest competitor. The recapture continues day by day, but it's not just about recapturing what we lost. It's about growing new business. You may recall, Alice, and at the end of the second quarter, we said we had about a $7 billion pipeline of new business.
Pricing and productivity can help expand the margins, but those are the pluses and minuses as we look into 'twenty. Four obviously will go into lot more detail on March 26, when we get together with you all for our next Investor day.
Unknown Executive: Today, we want about 25% of that pipeline. Now, that $7 billion is an annualized number, so all those packages and volume have come into the network yet. It will come in over the next year, but I couldn't be more pleased with how our sales team is performing and winning new accounts and winning back volume that deferred.
Speaker 6: transcript
Speaker 6: And that rated change in the first half, better than 4Q.
That rate of change in the first half better than <unk>.
Speaker 6: transcript
Speaker 6: Let me come back to you Dave, but we're certainly building momentum. Let's finish up the year Dave and then we'll give you some color about 2024. It's always about 2024 thanks to the time.
Let me come back to you Dave but.
But we're we're certainly building momentum, let's finish up the year, Dave and then we'll give you some color about 2020.
It's always about 'twenty 'twenty four thanks for the time.
Thanks, Dave.
Speaker 1: transcript
Speaker 1: Our next question will come from the line of Jordan Allegers of Equalment Facts. Please go ahead.
Our next question will come from the line of Jordan Alegar of Goldman Sachs. Please go ahead.
Carol Tom: Got it. And just to the follow-up, is the recapture at any cost associated with that recapture that you're yet to make? There's no material cost associated with the recapture. Customers are coming back because of our superior service. Great.
Speaker 7: transcript
Speaker 7: Yeah, I was wondering if you could give some color on your confidence level on the new revenue range, you know, how much certainty do you feel the visibility and what frames the high and low end. Thank you.
Hi, I was wondering if you could give some color on your confidence level on the new revenue range.
Do you feel the visibility and what frames the high and low end. Thank you.
Speaker 2: transcript
Speaker 2: So thanks Jordan for the question. Look, we feel good about the revenue range. We've narrowed it to a billion dollars. And I think the thing that's gonna drive the upper end versus the lower end really has to do with the retail backdrop. I mentioned in my script, there's sort of the broad range of the online retail sales for the holiday period. To the extent it's in the higher end of that, we'll have more volume and more revenue. To the extent it comes in with some of the risks we're seeing, it's towards the lower end.
So.
Thanks, Jordan for the question.
Look we we feel good about the revenue range, we've narrowed it to.
Brian Newman: Thank you. Our next question will come from the line of David Vernon of Bernstein. Please go ahead. Hey, thanks for taking the question, guys. So, Brian, you mentioned the 800 million step up. That's incremental sequential from three Q to four Q. I just want to make sure that I heard that correctly. That's the low end of your guidance range assumption. That's right, Dave. Okay, and then maybe more bigger picture rate is we think about the exit rate kind of implied of the guide.
Two $1 billion.
I think the the thing Thats going to drive the upper end versus the lower end really has to do with the retail backdrop I mentioned in my script, there's sort of a broad range of the online retail sales for the holiday period to the extent it's in the higher end of that we'll have more volume and more revenue to the extent it comes in with some of the risks we're seeing it.
Brian Newman: I think it works out to something like, you know, down 20% your superiority, but how do we think about that build back in 2024? You know, the front half, obviously you have inflation, but you've got the GRI to offset. Should we be expecting that sort of, you know, second derivative rate of change to slowly get better and then snap back? Or does it get, you know, meaningfully better in sort of one Q to Q?
Is towards the lower end.
Okay.
Thank you.
Speaker 3: transcript
Speaker 3: Thanks Jordan. Thanks for the quality. Maybe one of the other topics I could grind on the volume range. We know which of our customers.
Thanks Jordan.
And then maybe one other comment if I could Brian on the volume range.
We know which of our customers' peak during peak Youre about a 117 customers in the U S that make up about 86% of our peak volume, we're sitting down with each of those customers understanding what their plans are as we work on our operating plans to make sure we deliver superior service, having that insight if you will gives us.
Speaker 3: transcript
Speaker 3: There are about 117 customers in the U.S. that make up about 86% of our peak volume. We are sitting down with each of those customers, understanding what their plans are as we work on our operating plans to make sure we deliver superior service. Having that insight, if you will, gives us a lot of confidence in the U.S. volume numbers that Brian's shared with you.
Brian Newman: How do we think about the shape of 2024 and how it's stepping up to recover in the domestic barges? So two big pieces of sort of forward momentum. Dave, one is the exit rate on volume. Carol just talked about the wind back and also the pipeline of new business. So going in the next year, getting back on level footing with a system that has higher ADD will help us certainly from a cost and margin perspective.
A lot of confidence in the U S volume numbers Bryan shared with you.
Speaker 1: transcript
Speaker 1: Our next question will come from the line of Tom Waterwoods. If you BS, please go ahead.
Our next question will come from the line of Tom <unk> of UBS. Please go ahead.
Speaker 8: transcript
Speaker 8: Yeah, you made a couple comments on the volume that you're recapturing. And I just want to make sure I understand it. I guess it's an important point. So.
Yes.
Brian Newman: The revenue per piece, we announced the 5.9% GRI, so that'll be coming in. We talked to you recently about the cost overhang of the contract. That goes from August to August. So I would tell you from a shape, certainly the first half of the year will be more challenged than the back half of the year, back half of the year, we get into a two to three year glide path with lower inflation per year. And then so pricing and productivity can help expand the margins, but those are the pluses and minuses as we look into 24.
You made a couple of comments on the volume that you're recapturing and I just want to make sure I understand it I guess, it's an important point so.
Speaker 8: transcript
Speaker 8: I think, Carol, you said 600,000 pieces a day have been recaptured.
I think Carol you said 600000 pieces a day have been recaptured but then Brian you said kind of last year. The August to October was $1 $5 million is $2 $7 million increase this year. So that implies I guess $1.2 million increase so I just wondered if you could give a little more perspective of.
Speaker 8: transcript
Speaker 8: but then Brian you said kind of you know last year the August the October was 1.5 million is 2.7 million increased this year so that implies I guess 1.2 million increased so I just wondered if you could give a little more perspective of kind of where we're at in October how much of that loss business has been
Brian Newman: Obviously, we'll go into a lot more detail March 26 when we get together with you all for our next investor day. And that rate of change in the first half better than then for you. Let me come back to you Dave. But we're certainly building momentum that's finished up the year day, but then we'll give you some color about 2024. It's always about 2024.
Kind of where we're at in October how much of that loss business has been recaptured and then I guess another way you framed. It was December you were going to get back to flat volumes before they give us a prior comment do you still think you can do that or are we thinking December volumes are down.
Speaker 8: transcript
Speaker 8: And then I guess another way you framed it was December , you were going to get back to flat volumes before, I think it was a prior comment. Do you still think you can do that? Or are we thinking December volumes are down?
Thank you.
Brian Newman: Thanks for the time. Thanks, Dave. Our next question will come from the line of Jordan allegors of the Goldman Sachs. Please go ahead. Yeah, I was wondering if you could give some color on your confidence level on the new revenue range. You know, how much certainty do you feel the visibility and what frames the high and low end? Thank you. So thanks Jordan for the question. Look, we feel good about the revenue range.
Speaker 2: transcript
Speaker 2: yeah, Tom, so to frame it up for you, we were trying to get December back to flat versus prior year. I think the guide now implies from a low single digit to a mid single digit in the month of December . And that's pending some of the backdrop I just talked about in terms of the retail outlook. So from a momentum perspective, I gave an August to an October number. But as Carol mentioned, we lost 1.5 or we had diverted 1.5 million pieces. We've seen 40% of that, roughly 600,000 pieces already come back to the system. We're also pushing forward with new business, the Carol references as well.
Yes, Tom.
To frame it up for you.
We were we were trying to get December back to flat versus prior year I think the guide now implies from a low single digit to mid single digit in the month of December and Thats pending some of the backdrop I just talked about in terms of the retail outlook. So.
From a momentum perspective I gave you in August to an October number, but as Carol mentioned, we lost $1 five or we had diverted $1 5 million pieces, we've seen 40% of that roughly 600000 pieces already come back to the system. We're also pushing forward with new business that Carol referenced as well.
Brian Newman: We've narrowed it to a billion dollars. And I think the thing that's going to drive the upper end versus the lower end really has to do with the retail backdrop. I mentioned in my script there's sort of the broad range of the online retail sales for the holiday period to the extent it's in the higher end of that. We'll have more volume and more revenue to the extent it comes in with some of the risks we're seeing. It's towards the lower end.
Speaker 1: transcript
Speaker 1: Okay. Thank you. Thanks. Our next question will come from the line of Stephanie Moore of Jeffries. Please go ahead.
Okay.
Thank you.
Thanks.
Next question will come from the line of Stephanie more of Jefferies. Please go ahead.
Speaker 4: transcript
Speaker 4: I'm morning, thank you for the question. This is Joe Haffling on first, Stephanie Moore. I maybe have some central question on sort of the recapture looking in the near term, given it's peak season and customer they're focused on their own execution right now. Does this limit your ability to win back volumes in the near term? It shouldn't want to disrupt any of the plans that they've already gotten placed. Obviously, you've highlighted the capture rate sort of September of October , but just wondering if that slows down as we kind of get into November , December , just as, you know, the shipwre's don't want to disrupt their own operations right now.
Hi, Good morning. Thank you for the question. This is Joe halfway on first step anymore.
Question on sort of the recapture looking at the near term given its peak season and customers are focused on their own execution right. Now does this limit your ability to win back volumes in the near term.
Brian Newman: Thank you. Thanks, Jordan. Maybe one other comment if I could Brian on the volume range. We know which of our customers peak during peak. There are about 117 customers in the US that make up about 86% of our peak volume. We are sitting down with each of those customers understanding what their plans are as we work on our operating plans to make sure we deliver superior service. Having that inside, if you will, gives us a lot of confidence in the US volume numbers that Brian shared with you.
Chip I don't want to disrupt any of the plans that they've already got in place obviously high.
Highlighted the capture rates sort of September October, but I'm, just wondering if that slows down as we kind of get into November December.
Shippers don't want to disrupt your own operations right now.
Speaker 3: transcript
Speaker 3: Actually, it's accelerating. Customers want to come back into our network before peak because of our superior service that we've exhibited over the past five years.
Actually it's accelerating.
Just want to come back into our network before peak because of our superior service that we've exhibited over the past five years.
Brian Newman: Our next question will come from the line of Tom Waterwoods. If you BS, please go ahead. Yeah. You made a couple comments on the volume that you're recapturing. And I just want to make sure I understand it. I guess it's an important point. So I think Carol, you said 600,000 pieces a day have been recaptured. But then Brian, you said kind of last year, the August to October was 1.5 million and it's 2.7 million increased this year.
Got it. Thank you so much for Copel.
Speaker 1: transcript
Speaker 1: Our next question will come from the line of Kin Hexter of Bank of America. Please watch it.
Our next question will come from the line of Ken <unk> of Bank of America. Please go ahead.
Speaker 9: transcript
Speaker 9: Hey, great good morning. If I could just clarify one thing on the step up, I think to Allison, do you say you're not using increasing pricing as you get toward the tail end of that volume gain?
Brian Newman: So that implies I guess 1.2 million increased. So I just wondered if you could give a little more perspective of kind of where we're at in October, how much of that loss business has been recaptured. And then I guess another way you framed it was December, you were going to get back to flat volumes before. I think it was a prior comment. Do you still think you can do that? Or are we thinking December volumes are down?
Hey, great. Good morning, if I could just clarify one thing on the <unk>.
Step up I think to Allison do you say youre not using increasing pricing as you get towards the tail end of that that volume gain and then my question is on international rates Youre looking I guess, Brian to maybe.
Speaker 9: transcript
Speaker 9: And then my question is on international, right? So you're looking, I guess, Brian , to really snap back closer back to that 20% range. Is that kind of what you're still looking at in terms of margins that international as we move into the fourth quarter, just to understand the shift from peak versus belly space coming back on and the impacts to margin.
Matt back closer back to that 20% range is that.
What youre still looking at in terms of margins at international as as we move into the fourth quarter just to understand that the shift from peak versus Kelly's based on the backlog and the impacts to margin.
Speaker 10: transcript
Speaker 10: Yeah, on the first question, can the obviously you've got volume and pricing, I was talking to with Allison about the volume component, we have announced a six to seven percent peak season search hard, so that's obviously flowing through from a revenue standpoint in the fourth quarter as well. And I think Allison's question was, are there costs associated with winning back volume? And as I responded, not meaningful. Again, from time to time, we have found customers who diverted and they entered into longer term contracts. And it moved.
On the first question Ken.
You've got volume and pricing I was talking to with Alison about the volume component, we have announced a 6% to 7% peak season surcharge. So that's obviously flowing through from a revenue standpoint in the fourth quarter as well.
Think Alex's question was are there costs associated with winning back volume and as I responded no not meaningful Ken from time to time, we have found customers, who converted and they entered into longer term contracts and we might help them.
Brian Newman: Thank you. Yeah, Tom. So to frame it up for you, we were trying to get December back to flat versus prior year. I think the guide now implies from a low single digit to a mid single digit in the month of December. And that's pending some of the backdrop I just talked about in terms of the retail outlook. So from from a momentum perspective, I gave an August to an October number.
Speaker 10: transcript
Speaker 10: The exit of the longer term contracts, but it's not a meaningful discount. We might help them. Nothing measures.
Longer term contracts, but it is not a meaningful discount.
Might help them nothing measurable.
Brian Newman: But as Carol mentioned, we lost 1.5 or we had diverted 1.5 million pieces. We've seen 40% of that roughly 600,000 pieces already come back to the system. We're also pushing forward with new business, the Carol references as well.
Our next question will come from the line of Scott Group of Wolfe Research. Please go ahead.
Speaker 1: transcript
Speaker 1: I have no question to come from the line of Scott Group of Wolf Research. Please go ahead.
Speaker 11: transcript
Speaker 11: Hey, thanks. Good morning. So it brought one of the earlier questions about the bridge from Q3 to Q4. You answered it sort of how do we get to the low end? So should we think that the low end of the range is more of your base case? I just want to understand sort of that answer. And then can you just maybe more explicitly just talk about what your the margin expectations are for each of the segments in Q4 just to...
Hey, thanks.
Morning.
Hey, Brian one of the earlier questions about the bridge from Q3 to Q4, you answered it sort of how do we get to the low end so.
Carol Tom: Okay, thank you. Thanks. Our next question will come from the line of Stephanie Moore of Jeff Rees, please go ahead. Hi, good morning. Thank you for the question. This is Joe Haffling on first, Stephanie Moore. I had maybe a contextual question on sort of the recapture looking in the near term given its peak season and customer that focused on their own execution right now. Does this limit your ability to win back volumes in the near term?
Should we think that the low end of the range is more of your base case, I just want to understand sort of.
That answer and then can you just maybe more explicitly just talk about what your margin expectations are for.
Each of the segments in Q4 just to.
I wasn't sure what you were.
Speaker 11: transcript
Speaker 11: What you're thinking for each business? Just more than your proud
Carol Tom: It shouldn't want to disrupt any of the plans that they've already gotten placed. Obviously, you know, you've highlighted the recapture rate sort of September, October, but just wondering if that slows down as we kind of get into November, December, just as, you know, shifters don't want to disrupt their own operations right now. Actually, it's accelerating. Customers want to come back into our network before peak because of our superior service that we've exhibited over the past five years.
What youre thinking for each business.
However, you want to answer it.
Speaker 2: transcript
Speaker 2: You know, I have the walk in front of me for the high-end and the low-end, so I can give it to either range. And I think it's this retail backdrop uncertainty that drives the delta in volume, which drives the delta in profit. So it's the same levers. It's the volume and the revenue quality really driving the majority. It's at a higher component at the high-end versus the $800 million I referenced at the lower end. So net-net, I think from a margin shape standpoint, we finished Q3 mid-single-digit in the U.S. Obviously, that's a very low watermark driven by the volumes we saw in the quarter. We're looking in the fourth quarter to step back up into that high-single-digit, low-double-digit range, and so getting back to the trajectory. And then from an international perspective, we were at a 15-8 in the third quarter. I think Kate and the team have planned, largely through controlling what we can control, whether it's block hours, whether it's headcount, taking that, and they've done a good job of demonstrating that. Q1 was an 18-margin international, Q2 was a 20, so we're probably in the middle of that range for the fourth quarter. Hopefully that helps.
I have to walk in front of me for the high end and the low end. So I can give it to either range and I think it's this retail backdrop of uncertainty.
It drives the delta in volume, which drives the delta and profit. So it's the same levers it's the volume and the revenue quality are really driving the majority of its at a higher component at the high end versus the 800 million I referenced at the lower end. So so net net I think from a from a margin shape standpoint, we finished.
Brian Newman: Thank you so much. Our next question will come from the line of Kin Hexter of Bank of America, please go ahead. Hey, great. Good morning. If I could just clarify one thing on the step up, I think to Allison, do you say you're not using increasing pricing as you get toward the tail end of that volume gain? And then my question is on international, right? So you're looking, I guess, Brian to really snap back closer back to that 20% range.
Q3 mid single digit in the U S. Obviously, that's a very low watermark driven by the volumes. We saw in the quarter were looking in the in the fourth quarter to step back up into that high single digit low double digit range and so getting back to the trajectory and then from an international perspective, we were at a 15 eight in the third.
Brian Newman: Is that kind of what you're still looking at in terms of margins at international as as we move into the fourth quarter, just want to understand the the shift from peak versus belly space coming back on and the impacts to margin there. Yeah, on the first question, can the obviously you've got volume and pricing? I was talking to with Allison about the volume component. We have announced a six to seven percent peak season surcharge.
<unk> I think cadence team at planned largely through controlling what we can control whether it's block hours, whether it's head count taking that and they've done a good job of demonstrating that Q1 was at 18 margin International Q2 was a 'twenty. So we're probably in the middle of that range for the fourth quarter hopefully that helps.
Yeah.
Speaker 12: transcript
Speaker 12: Thank you. Yep.
Thank you.
Brian Newman: So that's obviously flowing through from a revenue standpoint in the fourth quarter as well. I think Allison's question was, are there costs associated with winning back volume? And as I responded, not meaningful. Again, from time to time, we have found customers who diverted and they entered into longer term contracts. And we might help them. Exit them longer term contracts, but it's not a meaningful discount. It's just we might help them. Nothing measurable.
Speaker 1: transcript
Speaker 1: Our next question will come from the line of Amit Mehrotra of Deutsche Bank, please go ahead.
Our next question will come from the line of Amit Mehrotra of Deutsche Bank. Please go ahead.
Speaker 13: transcript
Speaker 13: Thank you operator. Hi everybody. I guess maybe just a very simple question I guess is when do we return to
Thank you operator, hi, everybody.
I guess, maybe just a very simple question I guess is when do we return to.
Speaker 13: transcript
Speaker 13: margin expansion in domestic. I mean, RPPP, CPP spread was really negatively wide in the third quarter. I assume it's still negative. I'll be at left though in the fourth quarter. Can we get to a situation where we get back to you're on your margin expansion in early next year or do we have to wait until August when the labor really inflation really steps down?
Margin expansion and domestic RPT CPP spread was really negatively wide in the third quarter I assume it's still negative, albeit less so in the fourth quarter can we get to a situation, where we get back to year on year margin expansion early next year or do we have to wait until August when the labor.
Brian Newman: I have a question to come from the line of Scott Group of Wolf Research. Please go ahead. Hey, thanks. Good morning. So, Brian, one of the earlier questions about the bridge from Q3 to Q4, you answered it sort of how do we get to the low end? So should we think that the low end of the range is more of your base case? I just want to understand sort of that answer.
Inflation really steps down.
Speaker 10: transcript
Speaker 10: Well, maybe just an observation on the US margin in the third quarter. We call that we had $500 million of expense related to our cancer contract. The third quarter.
Maybe just an observation on the U S margin in the third quarter recall that we had $500 million.
The expense related to our teamster contract in the third.
You back that out the U S margin would've been 8% eight 5% on volume down 11.
Speaker 10: transcript
Speaker 10: 8.5% on volume down 11.
Speaker 3: transcript
Speaker 3: So we've got a bit of pressure on the margin that we shared with you because of our new contract. The contract is front and load. We're bearing the pain of that front and load for a five-year contract that's very attractive. The comp added annual growth rate on the five-year is 3.7%.
So we've got a bit of pressure on the margin of the shared with you because of our new contracts. The contract is front end loaded for bear and the paint a peptide that load for a five year contract that's very attractive the compounded annual growth rate on a five year to three 3%. So once we get through this first front end load at 46% of the cost in the first year.
Brian Newman: And then can you just maybe more explicitly just talk about what your the margin expectations are for each of the segments in Q4, just to I wasn't sure what you were what you were thinking for each business? I have the walk in front of me for the high end and the low end. So I can give it out to either range. And I think it's this retail backdrop uncertainty that drives the delta in volume which drives the delta in profit.
Speaker 10: transcript
Speaker 10: So once we get through this first front end load with 46% of the cost in the first year, once we get through that, the margin is going to grow. It's going to grow in a big way.
Once we get through that.
That growth is going to grow in a big way.
So hopefully that's helpful.
Speaker 10: transcript
Speaker 10: But I mean, it kind of is helpful, but I mean, I guess the question is, is that, you know, are we stuck in this return profile through the first half of next year? And then we see a step function improvement, or can we see improvement as you guys maybe rip off some of the rip out some of those seasonal costs in the first quarter that we can get back to you on your growth in the first quarter even? Absolutely. Fair question. I mean, let us finish this year. Then we will give you guidance for 2024. And we can break it down by quarter if that's going to be helpful.
Well I mean, it kind of is helpful. But I mean I guess the question is is that while we stuck in this return profile through the first half of next year and then we see a step function improvement or can we see improvement as you guys, maybe rip off some of the rip out some of those seasonal costs in the first quarter and we can get back to year on year growth.
Brian Newman: So it's the same levers. It's the volume and the revenue quality really driving the majority at a higher component at the high end versus the 800 billion I referenced at the lower end. So net net, I think from a from a margin shape standpoint, we finished Q3 mid single digit in the US. Obviously that's a very low watermark driven by the the volumes we saw in the quarter. We're looking in the fourth quarter to step back up into that high single digit low double digit range.
Absolutely fair question.
I just finished this year then we will give you guidance for 2024, and we can break it down by quarter, that's going to be helpful.
Okay. Thank you.
Speaker 1: transcript
Speaker 1: Our next question will come from the line of Ravi Shankar of Morgan Stanley . Please go ahead. Hey guys, good morning. This is Christina Garvey.
Our next question will come from the line of Ravi Shanker with Morgan Stanley. Please go ahead.
Brian Newman: And so getting back to the trajectory. And from an international perspective, we were at a 15-8 in the third quarter. I think Kate and team have plans largely through controlling what we can control, whether it's block hours, whether it's headcounts, taking that and they've done a good job of demonstrating that. Q1 was a 18 margin international, Q2 was a 20. So we're probably in the middle of that range for the fourth quarter.
Hey, guys. Good morning, this is Christian on for Robbie.
Speaker 14: transcript
Speaker 14: I want to take a step back and ask about kind of the path to some of the longer-term targets that you set out at your previous investor day.
I wanted to take a step back and ask about the path to some of the longer term targets that you set out how your previous Investor day, particularly just on some of the macro assumptions that you think youll need to get there we have seen definitely muted consumer spending in the last 18 months, but not a co op. So how much of an uptick in <unk>.
Speaker 14: transcript
Speaker 14: particularly just on some of the macro assumptions that you think you'll need to get there. You've seen definitely muted consumer spending in the last 18 months, but
Brian Newman: Hopefully that Thank you. Our next question will come from the line of Amit Mehrotra of Deutsche Bank. Please go ahead. Thank you operator. Hi everybody. Um, I guess maybe just a very simple question. I guess is when when do we return to margin expansion and domestic. I mean, RPPP, CPP spread was really negatively wide in the third quarter. I assume it's still negative. I'll be at left on the fourth quarter. Can we get to a situation where we get back to year on your margin expansion in early next year or do we have to wait until, you know, August when the labor really inflation really steps down.
Speaker 14: transcript
Speaker 14: not a co-op. So how much of an uptake and consumer spending do you need to get there or maybe set another way kind of how much do you feel is in directly in your control?
And the spending do you need to.
To get there or maybe said another way how much do you can you feel is in check.
In your control.
Speaker 10: transcript
Speaker 10: So as we look at the small package volume in the United States, what we're seeing is basically a reversion to the main. So we're at pre-pandemic level.
So as we look at the small package volume in the United States. What we're seeing is basically a reverse into the means that we are at pre pandemic levels, but I think our learning all of our learnings.
Speaker 10: transcript
Speaker 10: I think our learning, all of our learning, is that if I find spikes because of an event, things are going to revert back to the main.
Volume spikes because of event things are going to revert back to the name. If you look at the growth rates projected for the small package market in the United States, It's low single digit.
Speaker 3: transcript
Speaker 3: If you look at the growth rates projected for the small package market in the United States, it's low single digit for the next couple of years. So we plan to grow not just at the market, but ahead of the market because of the investments that we're making.
After the next couple of years. So we plan to grow not just at the market that ahead of the market because of the investments that we're making with new products and capabilities.
Brian Newman: Well, maybe just an observation on the US margin in the third quarter. We call that we had $500 million of expense related to our cancer contract, the third quarter. We backed that out. The US margin would have been eight and a half percent, eight and a half percent on volume down 11 is not a bad margin. So we've got a bit of pressure on the margin that was shared with you because of our new contract, the contract is front and open.
Speaker 10: transcript
Speaker 10: with new products, new capabilities, and actually new acquisitions, which we're very excited about. And maybe I'll take a minute to talk about Happy Returns, which we just announced last night. You know, our returns business has been pretty growthy because of the explosion of e-commerce. It's grown 25% since 2020. And we like this business a lot, but we know we can offer a better experience.
And actually new acquisitions, which we're very excited about and maybe I'll take a minute to talk about happy returns, which we just announced last night.
<unk> business has been pretty growth rate because of the explosion.
E Commerce, it's grown 25% since.
Since 2020, and we like this business a lot, but we know we can offer a better experience for our retailers because it's expensive retailers estimate that between 20 and 30% of all online orders are returned and it cost them on average about $33 to process that return so as happy returns.
Speaker 15: transcript
Speaker 15: for our retailers because it's expensive. Retailers estimate that between 20 and 30 percent of all online orders are returned, and it costs them, on average, about $33 to process that return.
Brian Newman: We're bearing the pain of that front and load for a five year contract. It's very attractive. The compound annual growth rate on the five years is 3.3%. So once we get through this first front and load with 46% of the cost in the first year, once we get through that, the margin is going to grow. It's going to grow in a big way. So hopefully that's helpful. I mean, it kind of is helpful, but I mean, I guess the question is, is that, you know, are we stuck in this return profile through the first half of next year?
Speaker 15: transcript
Speaker 15: So it's happy returns. We're going to offer consolidated returns for our customers, which will reduce their hand...
So we're going to offer consolidated returns of our customers, which will reduce their handling costs actually improve our delivery intensity. So it's a win win win and so we're going to put the pedal to the metal in terms of growing the returns business because it's a very good business for us and one that our customers need us our software so I'm excited about that.
Speaker 15: transcript
Speaker 15: actually improve our delivery density. So it's a win-win-win. And so we're going to put the pedal to the metal in terms of growing the returns business because it's a very good business for us and one that our customers need a solve for. So I'm excited about that. The other acquisition that I'm excited about is in healthcare. Our healthcare business will be $10 billion this year against an addressable market that's over $100 billion.
Brian Newman: And then we see a step function improvement, or can we see improvement as you guys maybe rip off some of the rip out some of those seasonal costs in the first quarter that we can get back to you on your growth in the first season? Absolutely fair question. I mean, let us finish this year. Then we will give you guidance for 2024 and we can break it down by quarter. That's going to be helpful.
The other acquisition that I'm excited about is in healthcare, our healthcare business will be $10 billion. This year against an addressable market that's over $100 billion.
Speaker 15: transcript
Speaker 15: We're going to grow that market. It's got double digit margins. We're going to grow it because we need to grow it. It's important for the world. It's important for humanity. And we are the best in the world to access. So that doesn't require any consumer spending. That's just leading into a market share of cashers with the capabilities that we are investing in and be at coaching capabilities and more.
We're going to grow that market its got double digit margins, we're going to grow it because we need to grow it is important for the world.
For humanity, and we are the best in the world at this so that doesn't require any consumer spending access leading internet market share capture but the capabilities that we're investing in culture and capabilities and more.
Carol Tom: Okay. Thank you. Our next question will come from the line of Ravi Shankar Morgan Stanley. Please go ahead. Hi guys. Good morning. This is Christina Garvey on for Ravi. I want to take a step back and ask about kind of the path to some of the longer term targets that you set out at your previous investor day, particularly just on some of the macro assumptions that you think you'll need to get there.
Really helpful. Thank you.
Speaker 1: transcript
Speaker 1: Our next question will come from the line of Jeff Kaufman, of Vertical Research Partners. Please go ahead.
Our next question will come from the line of Jeff Kauffman from vertical Research partners. Please go ahead.
Speaker 1: transcript
Speaker 1: Thank you very much. I'd like to drill down a little bit on the macro comments as they relate to domestic. I think it's pretty...
Thank you very much I'd like to drill down a little bit on the macro comments as they relate to domestic I think it's pretty straightforward, what you're saying about Europe and Asia, but can you help put some understanding around your concern for the weaker consumer with student loans and what have you. It does sound like we're going to.
Carol Tom: You've seen definitely muted consumer spending in the last 18 months, but not a collapse. So, you know, how much of an uptake in consumer spending do you need to get there or maybe set another way kind of how much do you feel is in directly in your control? So as we look at the small package volume in the United States, what we're seeing is basically a reversion to the main. So we're at pre-pandemic levels.
Speaker 1: transcript
Speaker 1: straightforward what you're saying about Europe and Asia, but can you help put some understanding around your concern for the weaker consumer with student loans and what have you? It does sound like we're going to be in for a reasonable holiday season. What, where are you seeing the weakness, whether it's a, an industry segment or a consumer segment, what concerns you on e-commerce and the domestic.
And for a reasonable holiday season.
What where are you seeing the weakness whether its a.
Industry segment or our consumer segment.
Carol Tom: And I think our learning, all of our learnings, is that I find spikes because in the event things are going to revert back to the main. If you look at the growth rates projected for the small package market in the United States, it's low single digits. So we plan to grow not just at the market, but ahead of the market because of the investments that we're making with new products, new capabilities, and actually new acquisitions, which we're very excited about.
What concerns you on ecommerce and the domestic consumer.
Speaker 15: transcript
Speaker 15: Well, we've seen clearly a shift from goods to services. And people through the pandemic started going back to work, taking vacations, eating at at restaurants, going to a museum apart. They're spending their dollars differently. They can serve us, it's not that they can serve us not healthy. They're spending their dollars differently.
Well, we've seen clearly a shift from the services through.
Through the pandemic started going back to work.
Taking vacations eating out at restaurants going to amusement park, they're spending their dollars differently than consumers. It's not that the consumer is not healthy they're spending their dollars differently and what we're seeing with many of our retail.
Carol Tom: And maybe I'll take a minute to talk about happy returns, which we just announced last night. You know, our return business has been pretty grossy because of the explosion of the commerce. It's grown 25% since 2020. And we like this business a lot, but we know we can offer a better experience for our retailers because it's expensive. Retailers estimate that between 20% and 30% of all online orders are returned. And it costs them on average about $33 to process that return.
Speaker 15: transcript
Speaker 15: And what we're seeing with many of our retail customers is a real desire to bring people back into their stores. And they should bring people back into their stores because it's their largest investment. So you see retailers offering buy online, pick up in store where they hadn't offered that before. So I can give you example after example of customers, not by name obviously, but customers that are in our top 20.
<unk> is a real desire to bring people back into their stores and they should bring people back into the stores because it's their largest in that.
So are you seeing retailers offering buy online pickup in store, where they hadn't offered that before so I can give you example, after example of customers not by name obviously that customers that are in our top 20, where they're seeing their same store sales.
Speaker 15: transcript
Speaker 15: where they're seeing their same store sales down year on year because they're out of version that COVID peak, if you will. And they're seeing their online sales down even more. And part of that is because people are going back into stores. Part of that. And they're seeing their own store sales down year on year.
Year on year, because they are anniversarying that Covid peak, if you will and they're seeing their online sales down even more and part of that is because people are going back into stores.
Carol Tom: So it's happy returns. We're going to offer consolidated returns for our customers, which will reduce their handling costs, actually improve our delivery density. So it's a win-win-win. And so we're going to put the pedal to the metal in terms of growing the returns business because it's a very good business for us. And one that our customers need a solve for. So I'm excited about that. The other acquisition that I'm excited about is in healthcare.
Part of that.
Justin So that's it.
Speaker 15: transcript
Speaker 15: So that's a comment that Brian made in his remarks about just some demand.
Brian made in his remarks about just some demand softening is that we do see that with some of our larger customers who didn't differ but their overall business and you can look at their guys and I'm not talking about anything that's not public you can look at their guys, where they not only have reported.
Speaker 15: transcript
Speaker 15: is that we do see that with some of our larger customers who didn't divert. But their overall business, and you can look at their guides, I'm not talking about anything that's not public, you can look at their guides where they not only have reported declining sales but they're guiding software.
Carol Tom: Our healthcare business will be $10 billion this year against an addressable market that's over $100 billion. We're going to grow that market. It's got double-digit margins. We're going to grow it because we need to grow it. It's important for the world. It's important for humanity. And we are the best in the world to ask this. So that doesn't require any consumer spending. That's just leading into a market share of cash with the capabilities that we are investing in. It's going to be a cool chain capability.
Decline itself, but they're guiding softer.
Yeah.
Okay. Thank you for the clarification yeah.
Speaker 1: transcript
Speaker 1: Yeah. Our next question will come from the line of Brandon Oklinski of Barclays. Please go ahead.
Our next question will come from the line of Brian didn't know Glinski of Barclays. Please go ahead.
Speaker 13: transcript
Speaker 13: Hey, good morning and thanks for taking my question. Brian , you did talk about revenue quality initiatives. I know folks have brought up price quite a bit on this call, but can you talk about not just your pricing outlook, but maybe the mixed impact from some of these initiatives you've had in the past on small and medium enterprises.
Hey, good morning, and thanks for taking my question, Brian You did talk about revenue quality initiatives I know folks are brought up price quite a bit on this call, but can you talk about not just your pricing outlook, but maybe the mix impact from some of these initiatives you've had in the past on small and medium enterprises.
Carol Tom: Thank you. Our next question will come from the line of Jeff Kauffman of Vertical Research Partners. Please go ahead. Thank you very much. I'd like to drill down a little bit on the macro comments as they relate to domestic. I think it's pretty straightforward, what you're saying about Europe and Asia, but can you help put some understanding around your concern for the weaker consumer with student loans and what have you, it does sound like we're going to be in for a reasonable holiday season.
Speaker 2: transcript
Speaker 2: Yeah, SMB, Brenner are a very attractive part of the business and we've continued to penetrate that market. So that's been favorable from a mixed perspective. We are seeing customers trade down though from air product to ground and so we've seen that in the numbers, air was down more than ground volume. So there's a bit of a headwind there from a customer mixed perspective. So overall, we have a customer mixed impact as well that's going on. We're gliding down with our largest customers. So there's a shift there that tends to help from an RTV perspective. Now it's interesting, if you go back to 29.
Yes.
<unk> spread it are very attractive part of the business and we've continued to penetrate that market. So that's been favorable from a mix perspective, we are seeing customers trade down, though from air product to ground and so we've seen that in the numbers are was down more than ground volume. So there's a bit of a headwind there from a customer mix perspective, so overall.
Carol Tom: Where are you seeing the weakness, whether it's a an industry segment or a consumer segment, you know, what concerns you on e-commerce and the domestic consumer? Well, we've seen clearly a shift from goods to services and people through the pandemic started going back to work, taking vacations, eating out at restaurants, going to amusement parks. They're spending their dollars differently. I think it's not that the consumer's not healthy. They're spending their dollars differently.
We have a customer mix impact as well that's going on we're gliding down with our largest customers. So there's a shift there that tends to to help from an RP fee perspective.
Interesting if you go back to 2019, our volumes about the same as in the third quarter as it was back in 2019.
Speaker 15: transcript
Speaker 15: Our volume is about the same as the third quarter as it was back in
Speaker 15: transcript
Speaker 15: But our SNB mix has moved from 23%.
But our F N b mix has moved from 23% to 29%.
Speaker 15: transcript
Speaker 15: and our net revenue per piece has moved from $9.99.
And our net revenue for Q move from $9 99.
Carol Tom: And what we're seeing with many of our retail customers is a real desire to bring people back into their stores and they should bring people back into the stores because it's their largest investment. So you see retailers offering buy-on-line pickup in store where they hadn't offered that before. So I can give you an example, after example of customers, not by name obviously, but customers that are in our top 20, where they're seeing their same store sales down year on year because they're anniversary in the COVID peak, if you will.
$12 50 for us.
Speaker 15: transcript
Speaker 15: So we've been laser focused on improving the revenue quality.
So we've been laser focused on improving the revenue quality in our business and we will continue to do that value defined by what the customer is willing to pay for and we are improving our experience every day.
Speaker 15: transcript
Speaker 15: And we will continue to do that. Value is defined by what the customer is willing to pay for, and we are improving our experience every day. A good example of that is delivery photo, where now 92% of all of our residential drops are photographed, which is creating a better experience for our recipients, for our customers, and for us, candidly. We're leaning into simplifying the experience and how it is to work with us, and we've talked to you about the widgets that we have at DAP.
Good example of that is is delivery photo we're now 92% of all of our residential drops.
To graft, which is creating a better experience for our recipients for our customers and for US candidly, we're leaning into simplifying the experience and how does that work with us and I've talked to you about the widgets that we have with <unk>.
Carol Tom: And they're seeing their online sales down even more. And part of that is because people are going back into stores. Part of that is their shifting. So that's a comment that Brian made in his remarks about just some demand softening is that we do see that with some of our larger customers who didn't divert, but they're overall business and you can look at their guides and I'm not talking about anything that's not public. You can look at their guides where they not only have reported the client himself, but they're guiding softer.
Speaker 15: transcript
Speaker 15: improvements that we've made in our claim process. We see our net promoter score now in the high 40s. So we are leaning on that experience because it helps grow the revenue quality and we're gonna continue to do that.
The improvements that we've made in our claim process you see our net promoter score now in the high forties.
We have that experience because it helps grow the revenue quality and we're going to continue to do that.
Thank you thanks.
Thanks Brendan.
Speaker 1: transcript
Speaker 1: Our next question will come from the blind of Brian Austin-Vec of JP Morgan. Please go ahead.
Our next question will come from the line of Brian <unk> of Jpmorgan. Please go ahead.
Hey, good morning, Thanks for taking the questions.
Speaker 2: transcript
Speaker 2: Maybe just two quick follow-ups actually. Can you talk about the pace of getting the share back as you go into the fourth quarter? Do you think...
Maybe just two quick follow ups actually can you talk about the pace of getting this share back as you go into the fourth quarter or do you think you're perhaps you had the lower hanging fruit the easier ones to convert back do you think that those came back sooner than maybe the pace from here.
Speaker 16: transcript
Speaker 16: You know, perhaps you had the lower hanging fruit, the easier ones to convert back. Do you think that those came back sooner? And maybe the pace from here is a little bit harder.
Brian Newman: Okay, thank you for the clarification. Yeah. Our next question will come from the line of Brandon O'Glensky of Barclays. Please go ahead. Hey, good morning and thanks for taking my question. Brian, you did talk about revenue quality initiatives. I know folks have brought up price quite a bit on this call, but can you talk about not just your pricing outlook, but maybe, you know, the mix impact from some of these initiatives you've had in the past on small and medium enterprises.
It is.
It's little bit harder and then.
Speaker 16: transcript
Speaker 16: And then on the buybacks you mentioned you're cutting or you're least you're stopping the buyback for the quality You've got two acquisitions targeted. I just wanted to make sure it was clear in terms of what those are if those were the
On the buybacks you mentioned youre cutting your least you're stopping the buyback for the quarter, you've got two acquisitions targeted I just wanted to make sure I was clear in terms of what those are if those were the heavier.
Speaker 16: transcript
Speaker 16: happy returns in the next or if there's potentially something else.
That would be returned to them an X or if there's potentially something else that was on the horizon.
Speaker 15: transcript
Speaker 15: We have nothing else planned on the right way. Today, so we'll be buying M&X and happy returns this quarter. And it's about a billion-thru in total that we'll be spending on those two companies. In terms of the pace of getting shared, I mentioned earlier it's accelerating because of the fact that it's because.
No nothing.
Brian Newman: Yeah, SMB, Brandon are a very attractive part of the business and we've continued to penetrate that market. So that's been favorable from a mixed perspective. We are seeing customers trade down though from air product to ground. And so we've seen that in the numbers, air was down more than ground volume. So there's a bit of a headwind there from a customer mixed perspective. So overall, you know, we have a customer mixed impact as well that's going on.
Nothing else planned.
Today.
So we'll be buying <unk> and happy returns this quarter and it's about 1 billion in total that will be spending on those two companies in terms of the pace of getting share as I mentioned earlier, it's accelerating because of the fact that because nearly honest. So if people want to come into that to the network Here's the truth, though it does take time to come back in.
Speaker 15: transcript
Speaker 15: So people want to come into the network. Here's the truth, though. It does take time to come back in. You know, I get weekly updates from Nando and the team, from Kate and the team, about how's the volume coming back in. And I see that, oh, we've gotten a handshake, we've gotten agreement from a customer that's coming back in. And then I see it takes 30 days to get it back on car. And so now I'm like, I want photos when it's on car because I want to make sure it's actually in the network. And that's what we're getting. We're having some fun with that, actually, because we're seeing it picked up from our competitors. That's always fun when you're picking up volume from your competitors.
Weekly updates from Endo and the team from Kate and her team about half the volume coming back in and I see that we've got in the handshake. We've got an agreement from a customer that's coming back in and then I see it takes 30 days to get it back into <unk> and so now I'd like a lot of photos when it's on car because I want to make sure. It's actually in the network and that's what we're getting we're having some fun with that.
Brian Newman: We're gliding down with our largest customer. So there's a shift there that tends to help from an RPP perspective. Now it's interesting if you go back to 2019, our volumes about the same as the third quarter as it was back in. 2019. But our SNB mix has moved from 23% to 29%. And our net revenue for P5 moved from $9.99 to $12.54. So we've been laser focused on improving the revenue quality in our business.
Because we're seeing it picked up from our competitors Thats always been what youre picking up on some of your competitors. So it's accelerating.
Yes.
Okay. Thank you.
Speaker 17: transcript
Speaker 17: Thank you.
Okay.
Brian Newman: And we will continue to do that. So we're now 92% of all of our residential crops are photographed, which is creating a better experience for our recipients, for our customers, and for us, Canada's life. We're leaning into simplifying the experience and how it is to work with us. And we've talked to you about the widgets that we have at staff or the improvements that we've made in our claim process. We see our net promoter score now in the high 40s. Now we are really at the expense because it helps grow the revenue quality. And we're going to continue to do that.
Yeah.
Okay.
Okay.
Stephen we have time for one more question.
Okay.
Okay.
Speaker 1: transcript
Speaker 1: Okay, with no further questions, thank you for your time and have a good day. Ladies and gentlemen, it does include our call for today.
Okay with no further questions.
For your time and have a good day.
Ladies and gentlemen that does conclude our call.
For today. Thank you for your participation you may now hang up.
Thank you.
Brian Newman: Thank you. Thanks, Brian. Our next question will come from the line of Brian Austin, back of JP Morgan. Please go ahead. Hey, good morning. Thanks for taking the questions. Maybe just two quick follow-ups, actually. Can you talk about the pace of getting the share back as you go into the fourth quarter? Do you think, you know, perhaps you had the lower hanging fruit, the easier ones to convert back to think that those came back sooner?
Okay.
Okay.
Okay.
Brian Newman: And maybe the pace from here is a little bit harder. And then on the buybacks, you mentioned you're cutting your year this year, stopping the buyback for the quarter. You've got two acquisitions targeted. I just wanted to make sure it was clear in terms of what those are, if those were the happy returns in M&X, or if there's potentially something else that was on the horizon. Nope. We have nothing else planned out in the right way.
Brian Newman: Today, so we'll be buying M&X in happy returns this quarter. And it's about a billionth reading total that we'll be spending on those two companies. In terms of the pace of getting share, as I mentioned earlier, it's accelerating because of the fact that it's nearly honest. So people want to come into the network. Here's the truth, though. It does take time to come back in. You know, I get weekly updates from Nando and the team, from Kate and the team about, well, how's the volume coming back in?
Brian Newman: And I see that, oh, we've gotten a handshake, we've gotten agreement from a customer that's coming back in. And then I see it takes 30 days to get it back into our car. And so now I'm like, I want both of us when it's on car because I want to make sure it's actually in the network. And that's what we're getting. We're having some fun with that actually because we're seeing it picked up from our competitors. That's always fun when you're picking up volume from these competitors. So it's accelerating.
Unknown Executive: Great. Thank you.
Unknown Executive: Even we have time for one more question. Okay, with no further questions, thank you for your time and have a good day. Ladies and gentlemen, it doesn't include our call, for today. Thank you for your participation. You may now hang up.
Unknown Executive: Thank you.