Q4 2023 United Parcel Service Inc Earnings Call

Unnamed Speaker: The estimated operating margin was 11.2%, which was well within our expectations. For the year, consolidated revenue was $91 billion, a decrease of 9.3%.

Unnamed Speaker: Consolidated operating profit totaled $9.9 billion, 28.7% lower than last year, and consolidated operating margin was 10.9%. We generated $5.3 billion in free cash flow during 2023, and we returned $7.6 billion to share owners in the form of dividends and share repurchase. Brian will provide more detail about our financial results in a moment. 2023 was a unique, and quite candidly, a difficult and disappointing year.

Unnamed Speaker: We experienced declines in volume, revenue, and operating profit in all three of our business segments. Some of this performance was due to the macro environment, and some of it was due to the disruption associated with our labor contract negotiations, as well as higher costs associated with the new contract. Through the year, however, we controlled what we could control, and in many areas, we delivered the highest productivity results in our company history. And, I think most importantly, we stuck to our strategy of customer first, people-led, and innovation driven. Let me share a few examples of how our strategy is establishing a foundation for future growth, starting with the customer first.

Unnamed Speaker: In 2023, our healthcare portfolio achieved our target of $10 billion in revenue. Here, we've made strong progress towards our goal of becoming the number one complex healthcare provider in the growing $130 billion global health care logistics market. Our global network of healthcare-compliant distribution space topped 17 million square feet in 2023, and our acquisitions of Bomi Group and MNX Global Logistics have expanded our cold chain capability and are enabling us to reach new markets and customers. To support growth in our international small package business, in December, we announced plans to build a new air hub at Hong Kong International Airport.

Unnamed Speaker: This new Airhub supports our plans to grow in the best parts of the market, including highly profitable Asia trade lines, and will enable us to expand our export and import business in the region. During the year, we continue to grow our S&B penetration. In 2023, SMBs made up 28.6% of our total U.S. volume, an increase of 60 basis points from last year. Part of this growth came from DAP, our digital access program. DAP has transformed how small companies do business with UPS. And in 2023, we generated $2.9 billion in DAP revenue, an increase of 22% year over year. Moving to people-led. In 2023, we delivered a labor agreement that provides certainty for the next five years, and because I'm a big believer in the power of one UPS. This year we are returning to a policy of everyone back in the office five days a week.

Unnamed Speaker: In terms of our culture, we are a network company, not just a logistics capability, but personal relationships too. Which brings me to Innovation Driven. On our busiest peak days, we sort over 50 million packages in the U.S. and deliver more than 30 million packages worldwide. How do we do it?

Unnamed Speaker: Leveraging the agility of our integrated network powered by UPS technology and the skills of our engineers and operating teams, our network planning tools enabled us to quickly match capacity with volume across the network and drive productivity. Technology also enabled improvements to driver and helper route planning and dispatch, resulting in improvements in density and fewer seasonal support drivers than in prior years.

Unnamed Speaker: It might surprise you to learn that we typically see an increase in returns volume before Christmas. In the fourth quarter, we moved lightning fast to integrate happy return. We made box-free, label-free returns available in over 5,000 UPS store locations just eight days after the acquisition closed.

Unnamed Speaker: The Happy Returns digital experience helped drive returns volume in the fourth quarter, with momentum extending into the first quarter of 2024. Finally, we continue to deploy transformative technology to increase efficiency within our warehousing facilities. The latest example is our state-of-the-art pick, pack, and ship center in Louisville, Kentucky that we call UPS Velocity.

Unnamed Speaker: We named it Velocity because it leverages robotics, automation, machine learning, and artificial intelligence to streamline fulfillment operations. This facility is capable of processing over 350,000 units per day and enabling a best-in-class experience for our customers and their customers. Our customer-first, people-led, innovation-driven strategy is the foundation of our business, and our continued execution of this strategy enabled us to exit 2023 with momentum. But momentum is not enough.

Unnamed Speaker: We've decided to take some bold moves to right-size our company for the future and to focus on the key enablers of growth. So today, we are announcing two actions. First, we plan to explore strategic alternatives for our truckload brokerage business, known as Coyote, which is part of Supply Chain Solutions.

Unnamed Speaker: And it's a business that is highly cyclical with considerable earnings volatility. We will keep you apprised as we move forward with this analysis. Second, we are going to fit our organization to our strategy and align our resources against what's wildly important. This will result in a workforce reduction of approximately 12,000 positions and around $1 billion in cost savings this year. Here we've identified new ways of working and are calling this fit to serve.

Unnamed Speaker: Let me end by sharing our 2024 outlook. In 2024, the small package market in the US, excluding Amazon, is expected to grow by less than 1%. And projected market growth rates for the rest of our business segments suggest some improvement, but not until the latter part of the year. In building our 2024 financial targets, we anchored the low end of our guidance on market growth, and at the high end of our guidance included growth we should experience if we captured market share. In 2024, we expect to generate consolidated revenue ranging from approximately $92 billion to $94.5 billion and a consolidated operating margin ranging from approximately 10 to 10.6%. Given the nuances of our new labor contract, there will be a stark contrast between our first half and our second half performance.

Unnamed Speaker: First half earnings will be compressed, and second half earnings will expand. In both the low and high end of our guidance range, we expect to exit the year with a U.S. operating margin of 10%. Brian will provide more details in a moment. UPS remains rock-solid strong.

Brian: While our dividend payout is currently higher than our targeted payout of 50% of our prior year's adjusted earnings per share, we are confident in our future. As a result, the UPS Board approved a penny increase in the quarterly dividend from $1.62 per share to $1.63 per share. This is the 15th consecutive year we have increased the UPS dividend. So now that 2023 is behind us, we look forward to seeing you at our upcoming Investor and Analyst Day on March 26. At that time, we will share our three-year plans to grow and drive shareowner value. With that, thank you for listening, and now I'll turn the call over to Brian. Thanks, Carol. Good morning.

Unnamed Speaker: In my comments, I'll cover three areas, starting with a macro and our fourth-quarter results. Then I'll review our full year 2023 results, including cash and shareholder returns. And lastly, I'll provide comments on expectations for the market and our financial outlook for 2024. The macro environment in the fourth quarter showed improvement. However, in the transportation and logistics sector, conditions remain under pressure both in the U.S. and internationally due to soft demand and overcapacity in the market.

Unnamed Speaker: Throughout the quarter, we leveraged the agility of our integrated network to match capacity with demand, and we were recognized by an independent third party for providing industry-leading service for the sixth peak in a row. Looking at our financial results for the fourth quarter, consolidated revenue was $24.9 billion, down 7.8% from the fourth quarter of 2022. All three of our segments demonstrated agility and, on a combined basis, drove down total expenses by 1.1 billion dollars in the fourth quarter year over year. This enabled us to deliver operating profit within the range we communicated to you last quarter. The consolidated operating margin was 11.2% for the quarter and was in line with our expectations.

Unnamed Speaker: For the fourth quarter, diluted earnings per share was $2.47, down 31.8% from the fourth quarter of 2022. Now, let's look at our business segment. In the U.S.

Unnamed Speaker: Domestically, we knew going into the fourth quarter that volume would be ramping up off an exceptionally low third quarter. Our efforts to win back diverted volume and pull through new volume resulted in a record sequential volume surge. Throughout PEAK, we delivered excellent service to our customers while managing expenses. In the fourth quarter, average daily volume came in at the low end of our range and was down 7.4% year over year. The B2B average daily volume in the fourth quarter was down 6.8% year-over-year, driven by declines in the retail, manufacturing, and high-tech sectors.

Unnamed Speaker: In the fourth quarter, B2B represented 35.5% of our volume, which was up slightly from 35.3% in the same period last year. Also, in the fourth quarter, continued macro pressures drove customers to seek economy products as we saw customers shift volume out of the air onto the ground. Total air average daily volume was down 15% year-over-year, and ground average daily volume was down 5.8% versus the fourth quarter of last year.

Unnamed Speaker: For the quarter, U.S. domestic generated revenue of $16.9 billion, down 7.3%. Revenue per piece was slightly positive year-over-year, with a number of moving parts. A combination of strong base rates and customer mix increased the revenue per piece growth rate by about 390 basis points. However, this was offset by a few factors. First, changes in product mix and package characteristics decreased the revenue per piece growth rate by 140 basis points.

Unnamed Speaker: Second, reflecting the lower volume in the quarter, peak season surcharge revenue declined, which reduced the revenue per piece growth rate by about 120 basis points. And lastly, changes in fuel prices decreased the revenue per piece growth rate by 110 basis points. Turning to cost, total expense was down 3.6%.

Unnamed Speaker: And in the face of a 12.1% increase in union wage rates, which was driven by the contractual increase that went into effect last August, we pulled several levers to more than offset the higher expenses. First, we leveraged our network planning tools and total service plan to reduce total hours in the fourth quarter by 10.2%, which was more than offset the decline in average daily volume. This enabled us to decrease compensation and benefits, which drove down the total expense growth rate by around 30 basis points.

Unnamed Speaker: Second, lower purchase transportation expenditures reduced the expense growth rate by around 70 basis points, primarily from lower volume levels and our continued optimization efforts. Next, lower fuel costs contributed 160 basis points to the decrease in the total expense growth rate. And lastly, the net of all other expense items and allocations reduced the expense growth rate by 100 basis points.

Unnamed Speaker: Pulling it all together, these actions helped us reduce U.S. domestic expense in the fourth quarter by $578 million, which was our largest fourth quarter dollar cost reduction ever. Looking specifically at peak, as volume returned to the network and our biggest customers drove a surge in peak volume, we ran our integrated network with agility. In fact, in 2023, we closed over 30 sorters, and they remained closed during peak. By leveraging our network planning tools, we took advantage of the flexibility of our integrated network and flowed more volume into our automated building. And with SmartPakage Smart Facility in over 1,000 buildings, misload frequency has improved 67%, contributing to the superior service we deliver to our customers.

Unnamed Speaker: The U.S. domestic segment delivered $1.6 billion in operating profit, down 32.6% compared to the fourth quarter of 2022. However, compared to the third quarter of 2023, operating profit in U.S. domestics increased $904 million and was our highest sequential operating profit increase ever. Operating margin in the fourth quarter was 9.3%, a 440 basis point improvement over the third quarter of 2023. Moving to our international segment, soft demand continued to pressure volumes out of Asia. And in Europe, several key economies remained in recession, which pressured demand and drove a shift away from express services.

Unnamed Speaker: In response, we focused on revenue quality and adjusted our global network to match changes in geographic demand. Looking at volume, in the fourth quarter, international total average daily volume was down 8.3 percent year-over-year. The decline was primarily due to lower domestic average daily volume, which was down 10.8 percent, driven by declines in Europe and Canada, areas of the world that continue to face persistent inflationary pressures. On the export side, total average daily volume declined 5.9% on a year-over-year basis, driven by declines in Europe due to weak macro conditions. Looking at Asia, export average daily volume was down 8.9 percent, driven by soft demand in the retail and high-tech sectors.

Unnamed Speaker: However, export volume on the China to U.S. lane, which is our most profitable lane, increased 2.7 percent, driven by SMBs. Nearly offsetting the decline in Asia, in the Americas region, export average daily volume grew 11.9%, led by customers in Canada and Mexico, leveraging our cross-border ground service. In the fourth quarter, international revenue was $4.6 billion, which was down 6.9% from last year, primarily due to a decline in volume.

Unnamed Speaker: Revenue per piece increased 3.1%. Strong base pricing and a change in customer mix drove a 420 basis point increase in the revenue per piece growth rate. A reduction in fuel surcharge revenue negatively impacted the revenue per piece growth rate by 60 basis points, and Lower Demand Related Surcharge revenue, which was partially offset by the impact of a weaker U.S. dollar, decreased the revenue per piece growth rate by 50 basis points. Moving to expense, in the fourth quarter, total international expense was down $152 million, primarily driven by lower fuel expense. Additionally, in response to the lower demand environment, we managed our network to match capacity with demand, which included reducing international block hours by 9.4%. Operating profit in the international segment was $899 million, down $192 million year-over-year.

Unnamed Speaker: Operating margin in the fourth quarter was 19.5%. Now, looking at supply chain solutions, in the fourth quarter, revenue was $3.4 billion, down $435 million year-over-year. Looking at the key drivers, in international air freight, overall volumes were down despite a mid-quarter spike in e-commerce.

Unnamed Speaker: Market rates continue to be pressured, resulting in lower revenue and operating profits. On the ocean side, volume increases driven by the retail sector; however, excess market capacity pressures revenue and operating profits. Within forwarding, our truckload brokerage unit, known as Coyote, continued to face pressure from excess capacity in the market, which drove revenue and operating profit down. In the fourth quarter, Supply Chain Solutions generated an operating profit of $319 million and an operating margin of 9.4%.

Unnamed Speaker: Walking through the rest of the income statement, we had $207 million of interest expense, our other pension income was $66 million, and our effective tax rate for the fourth quarter was 22.5%. Now, let me comment on our full year 2023 results. For the full year 2023, revenue declined 9.3% to $91 billion.

Unnamed Speaker: And we generated operating profit of $9.9 billion, a decrease of 28.7% compared to full year 2022. Consolidated operating margin was 10.9%. We generated $10.2 billion in cash from operations and continue to follow our capital allocation priorities. We invested $5.2 billion in CapEx. Additionally, we acquired MNX Global Logistics and received happy returns. We distributed $5.4 billion in dividends, which represented a 6.6% increase on a per share basis over 2022. We repaid $2.4 billion in debt that matured during the year, and at the end of the year, our debt-to-EBITDA ratio was 2.2 times.

Unnamed Speaker: Lastly, we completed $2.25 billion in share buybacks in 2023. And in the segments for the full year, in U.S. domestic, operating profit was $5.4 billion, and operating margin was 9%. The international segment generated $3.3 billion in operating profit, and its operating margin was 18.4%, and Supply Chain Solutions delivered operating profit of $1.2 billion and an operating margin of 9%. With 2023 behind us, let us move to our outlook for 2024. S&P Global is forecasting an improvement in global macro conditions as the year progresses. Outside the U.S., real exports in Europe are expected to improve each quarter throughout the year.

Unnamed Speaker: Looking at Asia, we saw positive momentum on the China to US lane exiting the year, and we remain cautious on the outlook for 2024. In the U.S., the projected small package market growth rate is just under 1%, excluding Amazon. A slight improvement is expected in U.S. manufacturing, and the consumer is expected to remain resilient despite lingering inflationary pressures. We've built a plan that reflects the current environment and potential risks that we see. This includes fitting our organization to our strategy and aligning execution to our wildly important initiatives under what we call Fit to Serve. As Carol mentioned, we are exploring strategic alternatives for Coyote, our truckload brokerage business, which will enable us to address some of the cyclical impacts in our forwarding business, and we are reducing our workforce by approximately 12,000 positions.

Unnamed Speaker: This will cut around $1 billion in costs in 2024. Moving to our 2024 financial outlook, we are providing a range based on volume growth. The low end of the range has UPS growing at a market rate, and the high end of the range has us gaining share. For the full year 2024, on a consolidated basis, revenues are expected to range from approximately $92 billion to $94.5 billion. An operating margin of approximately 10 to 10.6% is expected.

Unnamed Speaker: In the range provided, we expect to move total average daily volume from negative growth in the first half of the year to positive growth in the back half. This is primarily driven by lapping the volume diversion we experienced in the U.S. last year during our labor negotiations. Additionally, costs will weigh on us in the first half of the year, primarily due to the high labor cost inflation associated with the new contract.

Unnamed Speaker: Looking at consolidated revenue, in the first half of the year, we expect the growth rate to decline within a range of approximately 1 to 2 percent, with the first quarter driving the decline. And in the second half of the year, revenue growth is anticipated to be up within a range of mid to high single digits. Looking at consolidated operating profit, we expect material improvement as the year progresses, with the second half of the year outperforming the first half. Lastly, we expect to generate our lowest consolidated operating margin of the year in the first quarter.

Unnamed Speaker: Now let me give you a little color on the segments. Looking at U.S. domestic, average daily volume growth is expected to be within a range of approximately flat to up 2% for the full year. At both the low and high ends of the range, we expect the revenue per piece growth rate to outpace the cost per piece growth rate beginning in the third quarter, and we expect to exit the year at a 10% operating margin. Moving to the international segment, we expect 2024 average daily volume to be within a range of approximately flat to up around 3%. At both ends of the guidance range, operating margin is anticipated to be in the high teens. And for supply chain solutions for the full year in 2024, we expect revenue to be within a range of approximately 13 to 13 and a half billion dollars. At both ends of the guidance range, the operating margin for SES is expected to be in the high single digits.

Unnamed Speaker: And for modeling purposes, in total below the line, we expect approximately $400 million in expense in 2024. This is net of $262 million in pension income. We included a slide in the appendix of today's webcast deck to provide you more detail on pensions. The webcast deck will be posted on the UPS Investor Relations website following this call.

Unnamed Speaker: Now let's turn to full year 2024 capital allocation. Our capital allocation priorities have not changed. We are staying on strategy and will make the best long-term decisions to capture growth, improve efficiency, and deliver value to our shareholders. We expect 2024 capital expenditures to be within our target of around 5% of revenue, or four and a half billion dollars. Now let's turn to our expectations for cash and the balance sheet. We expect free cash flow to be within a range of approximately $4.5 to $5.3 billion, including our annual pension contributions of $1.4 billion, which are equal to our expected service costs. As Carol mentioned, the board approved a dividend per share of $1.63 for the first quarter.

Unnamed Speaker: We are planning to pay out around $5.4 billion in dividends in 2024, subject to board approval. Finally, our effective tax rate in 2024 is expected to be approximately 23.5%. In closing, we look at 2024 as a year to pivot away from negative volume growth to positive volume growth and from high labor cost inflation to a much lower growth rate. We are laser-focused on executing our strategy, controlling what we can control, and improving our financial performance. We look forward to sharing our multi-year targets and details on our strategy at our Investor Day event on March 26. Thank you, and Operator, please open the line.

Chris Wetherbee: Thank you. We will now conduct a question-and-answer session. Our first question will come from the line of Chris Wetherbee of Citigroup. Please go ahead.

Unnamed Speaker: Hey, thanks. Good morning, guys. I guess I wanted to start on maybe some of the cost out. You mentioned the $12,000. $500,000 of cost. I was hoping maybe you could help us sort of understand the timing of that, on a run rate., and Wynette Billionaire.

Unnamed Speaker: Sure. Happy to give you some color. So we talked about 12,000 heads out. 75% of the reductions will come in the first half, which drives 1 billion in the 2024 calendar year. But you're absolutely right in terms of the timing and announcement.

Unnamed Speaker: It'll be backend weighted. And really, the thing I'd like to point out is that it's a change in the way we work. So as volume returns to the system, we don't expect these jobs to come back. It's changing the efficient way that we operate. And I might just add a little more color if I could.

Unnamed Speaker: Today we have about 495,000 UPS drivers. A few years ago, when COVID demand was peaking, we had 540,000. Kate and Nando have done a masterful job of managing our operational headcount to meet the volume in our company, and they've done that by managing turnover and attrition and closing sorts and reducing block hours, etc. We have about 85,000 UPSers who are managers, and this can be full-time and part-time

Unnamed Speaker: The targeted head count falls really within that group, as well as some contrast. And to Brian's point, this is really about a new way of... So it's a billion dollars of cost out now, but there's even more cost out to come as we have a full year benefit in 2020. Our next question will come from the line of David Vernon of Bernstein. Please go ahead.

David Vernon: Hey, good morning, guys, and thanks for taking the question. So I just wanted to ask on the productivity side, obviously, hours down more than volume. We've had a couple quarters of that, obviously, not the third quarter this year.

Unnamed Speaker: Is there a point where volume declines or becomes more difficult to offset? I'm just trying to understand the downside risk, right? If volumes continue to remain flat or weaker than you expect, how should we be thinking about the downside risk on the margin? So we believe that productivity is a virtuous cycle here at UPS, and I'll give you one example. Then I'm going to throw it over to Nando to address this, but if I look at one metric, cube utilization. We reached the highest CUBE utilization in our company history at 60%. That's the equivalent of reducing 1,500 loads per day. So that's not in hours, but it's just the cost of doing it. So we've got productivity across the operations. And Nando, why don't you talk about what you're going to do?

Nando: Yes. So, David, thanks for the question. For us, it is a virtuous cycle, so we're working ahead of any type of volume variability. So whether it goes up... We're down. We've got some of our best engineers, operations folks, and finance folks identifying additional cost bouts as we move forward, as we're executing the ones that we have in front of us. So we feel good that there's a good pipeline of opportunity, no matter what the volume does. And as Carol mentioned, we lever our hourly headcount and match that to the volume and the activity.

Unnamed Speaker: And so far, so good, but still lots in front of us, and they're pretty meaty, so we feel really good about those initiatives. And at our investor day in March, we're going to talk to you about the network of the future. We've got an integrated network, we don't have to integrate, but we can transform our network with some very exciting ideas, so we're going to share that with you.

Unnamed Speaker: And the rate at which resource needs are going to need to be added back on the other side with, you know, maybe we get some volume expansion. Can you talk about the expectations for operating leverage on the upside? Yeah, I think as we look to the back end of the year, certainly the volume projections that are in there, in terms of the volume growth for the back end of the year and that two to 4% range domestically, we start to see CPP growing slower than RPP. And so that balance is what's going to create the operating margin. We closed over 30 sorts and did not reopen them during peak.

Unnamed Speaker: So we're changing Nando's doing an effective job of basically managing more volume with less. So we'll continue to drive that. All right, thank you guys. Thanks. Our next question will come from the line of Amit Mehrotra of Deutsche Bank. Please go ahead.

Amit Mehrotra: Thanks, everyone. I just wanted to, Brian, on the guidance. I guess the guidance implies 9.6 billion in operating profits. You've been pretty helpful historically about giving us kind of the first half, second half cadence of that. And then, and then just related to that, I want to make sure that the billion dollars is included in the guidance. Can you just expand on that a little bit? Because if I take out the billion, the implied change in profits relative to the improvement in revenue is quite a bit worse. So I'm just trying to understand what's actually included in the guidance from the billion dollars and how that kind of translates to what you're assuming underneath it in terms of the change in profit relative to the change in revenue. Sure, I'll be happy to, Amit.

Brian: So, from a shape of the year perspective, the full year, we called revenue 1 to 4 percent, but based on the lapping of the volumes and the contract overlap, we would expect revenue to be flat to down 2 in the first half, up 4 to 8 in the back half. And from a profit perspective, I had mentioned that it's a tale of two cities in terms of the halves of the year. In the second half of the year, we'd expect profit to grow about 20 to 30 percent. So, Q1 will be the biggest challenge because we're lapping from a volume comp perspective and a full contract, but on a full year basis, we're looking at an operating margin of 10 to 10.6. I think you can expect the second half of the year to be in that range, and you can back into the first half.

Unnamed Speaker: In terms of your question of backing out the billion in cost, that billion will be a cost benefit in 2024, but I think we've said in the past, Amit, it would take 12 months to digest the new labor cost. We are confident we can get back to consistent expansion of U.S. margins as we lap the first year of the contract. That will be a combination of pricing and productivity. So, net-net, it's really lapping that contract, and then you start to get the benefits. As Carol said, some of those benefits would accrue over to 2025 as well. And are we done there on the billion? Or is it like, there's 55 billion in total cost? I mean, are we just getting started?

Unnamed Speaker: Or like, what's the actual opportunity there beyond the billion? So Carol talked about the differences between Nando and Kate, the operating costs, and what we're talking about, management headcount. If you bifurcate the two, I think you're going to hear more at Investor Day through things like Network of the Future, how we go after additional headcount in that area, but this would be about a 14% reduction in that 85,000 headcount. We're never done.

Unnamed Speaker: We continue to drive productivity. It's a virtuous cycle here, and technology has changed so much in the past year. When you think about the advent of generative AI and the applications inside of our business, we're just getting started, and I'm really excited about what the future will mean in terms of driving productivity and as well as improving the customer experience. Thank you very much. Our next question will come from the line of Connor Cunningham of Mellius Research. Please go ahead.

Connor Cunningham: Hi everyone, just to stick with the productivity side, you've been obviously pretty dynamic with your network, and you mentioned I think 30 short closures and whatnot. Can you just talk about the consolidation opportunity in 24 and how that may play out to drive further efficiencies in the business? Thank you.

Unnamed Speaker: So we'd be happy to do that, but we're going to put that question aside until our March conference because we've got a great presentation to share with you regarding Network of the Future, and it would take up way too much time today to go through that. We want to spend a good amount of time talking to you about that in March. So thank you for understanding. Thanks, Connor. Our next question will come from the line of Allison Paliniak of Wells Fargo. Please go ahead. Hi, good morning.

I just want to turn to the growth aspect of it, I guess more specifically the market share capture. Could you maybe walk through the different levers, you know, in terms of, I know you mentioned Project Brown, your ability to recapture diversion, diverted volume, but also, you know, talking to SMB penetration, your opportunity on the healthcare side, just any color in terms of where those levers can be pulled for that market share growth in 2020? I'll start with a few comments about Project Brown. Project Brown really is a new way of going after business. And it has many elements to it, and I'll make some of those real, too.

Unnamed Speaker: First of all, we looked at ourselves and said, "What's getting in the way of... It was taking us too long. And we found that we hadn't really declared service level agreements amongst the various companies that participate in this exercise of providing offers to our customers. So we've shortened up the time to response, and that's important, and that's going to be with us now forever. I can make that real for you. Outside of the United States, it used to take 22 days.

Unnamed Speaker: We dropped it to six days. We're now at two days. That's best in class, and we've made similar improvements in the United States. Project Brown was also looking at Deal Manager, a new tool that we introduced that uses artificial intelligence and machine learning to score a deal and avoid the need for our salespeople to go up to our pricing people for a pill.

Unnamed Speaker: They can actually see the score of their deal. We've had great acceptance and win rates, 79% win rates, with this tool. But we found through Project Brown that we weren't offering all of our products in the tool, and one of the products we weren't offering was Surepost, which is a great product. So we introduced Surepost into the Deal Manager, and we're getting some good returns on that. That's particularly attractive for our small and medium-sized stock customers. Another thing that we did is that we improved and increased weekend pickups in several key markets during the year. So, and I could go on and on and on, but this is a way of operationalizing excellence to drive the business and capture share. So where are we gonna capture and share?

Unnamed Speaker: We're gonna continue to lean into the small and medium-sized segment opportunities. We are going to continue to sell the service that we provide and the capabilities that we have, and that's our integrated. So, at our Investor Day in March, we'll lay out market share capture, but let me just make the market real for you, because this might be helpful, too. As we think about the addressable market, the addressable market is the market that we're going to be investing in in the next five to ten years. United States.

Unnamed Speaker: It's a little over 50, 52 million packages a day. So there's plenty of an addressable market. And plenty of market for us to get outside of the United States because we are underpenetrated in so many areas. One reason I called out our new air hub at the Hong Kong International Airport is that the greater China Bay area is an unbelievable economic power base, the 13th largest economy in the world. 37% of all Chinese exports go through that airport.

Unnamed Speaker: And today we have small, way overcapacity hubs and buildings that are inefficient with lease rates that are sky high. So we are building a 20,000 square meter facility. It will make us the second largest air hub in that important part of the market, so expect to see a lot of growth coming from that over time. Great, thank you. Our next question will come from the line of Tom Wadewitz of UBS. Please go ahead. Yeah, good morning.

Tom Wadewitz: So I wanted to see if you could talk a little bit about the competitive dynamic in the market. I know the backdrop is that you had some share loss associated with the Teamster contract, but it also seems like there might be risks that other competitors are gaining traction in the market. So if you look at the Postal Service, they had, I think, up 7% in volumes, and they had a new product, the Ground Advantage. And so I guess the question is, is there a risk that the, you know, competitive set has become more challenging?

Unnamed Speaker: And how do we think about what you need to do to have a better volume outcome in 2024? Is there, you know, more pressure on price? Or is it a different formula to get a better volume outcome in 2024?

Unnamed Speaker: Thank you. So I would say that the pricing environment is very rational. And you can see that as Brian ticked out the RPP performance in the fourth quarter, we had very strong base rates. Now, the RPP was muted because of lower fuel costs and product characteristics, product mix changes, and lower demand surcharges, but the base was very strong. And we expect the base to continue into 2024. Our GRI for 2024 is 5.9%. Will we keep all of it? No.

Unnamed Speaker: But will we keep a lot of it? Yes, just like we did in 2023. We kept about 60% of the GRI in 2023. So the pricing environment is rational. In terms of competitive products, it's incumbent upon us to stay at the leading edge and meet our customers where they want us to. That's one reason we offered a hyper-local product beginning last quarter, which is really a short zone product.

Unnamed Speaker: And as we look at the offerings that we will go to market with this year, we've got some things underway. Not ready for prime Time, but I suspect, looking over at our new chief commercial officer, Matt Guffey, that we might be able to talk about that at our March in Vector conference. And he's nodding his head, so stay tuned for that.

Unnamed Speaker: Okay, thank you. Our next question will come from the line of Jeff Kaufman of Vertical Research Partners. Please go ahead.

Thank you very much. I'm going to defer the big picture stuff to March, but I'm just kind of curious, you know, how did your global view change between when we were discussing the labor deal back in August, September and at year end? You mentioned the softness in Europe, you mentioned the shift from air to ground, but, you know, kind of what were the big changes in your outlook over those four or five months? Well, what really softened up was Europe.

Unnamed Speaker: If you look at our volume decline, both domestic and export, it was heavily weighted to Europe. In fact, the decline in our export was 94% driven by the... So you see what's happening with industrial manufacturing there is just way off. So that is a big change.

Unnamed Speaker: There are also dynamics happening in air and ocean freight, as you've been watching. We've all been watching the drama in the Red Sea, the fact that the water levels in the Panama Canal are low, and that certainly is causing a lot of chaos, actually, in ocean and air freight. Interestingly, on the air side, both rates and volumes were down.

Unnamed Speaker: On the ocean side, volumes are up, but, as Brian called out, the rates were considerably down. As we sit here today, it's a very dynamic market and ever-changing, a little hard to predict, candidly, because what we're seeing today is that shippers who have high-value packages are actually worried about the ocean conditions, so they're moving to the air. So air rates are tightening. And on the ocean side, because shippers are starting to have to reroute away from the Red Sea or the Panama Canal, the routing is taking longer, so there's some change in the dynamics of the pricing there, too. We just have to stay super nimble here, and Kate and her team are doing a great job at that. Kate, what would you like to add?

Kate: Yeah, I would say that the market remains volatile. Even in Europe, with the drop-off and the inflationary, you know, softening, we were able to pull back on the cost to deliver a great margin, and that's our commitment. And then to ensure that on the forwarding side of the house, as we've done, stay razor sharp to ensure that we are right on track with any trend that we see. And I'm really proud of the team because we have got the initiative to gain those customers with high-value goods and the international air freight that's coming as a result. And just if I could follow up on that answer, so given the global events with the Suez Canal and the Panama Canal, looking at the lemonade out of lemon side of this, is this a bigger opportunity for you in Europe, or is this a bigger opportunity for air out of lemon? It actually is the first showing up on the Asia to Europe lane, but I will say this is going to be repositioning of vessels around the globe. It's going to be a global event.

Unnamed Speaker: So we see it as an opportunity worldwide, and our sales resources are global. Our portfolio is global. So UPS is very well positioned to take advantage of it.

Unnamed Speaker: Our next question will come from the line of Brandon Oglenski of Barclays. Please go ahead. Hey, good morning, and thanks for taking my question. Can you guys speak to your enterprise customers and the volume trends that you saw in the fourth quarter and expectations going into 2024, and maybe compare and contrast that with B2B as well as your small-medium business mix? I'd be happy to, Brandon.

Brandon R. Oglenski: We were actually pleased with the volume momentum. We were at a low watermark in August of last year, down 15%, and we saw sequential monthly improvement as we looked at our volume domestically from an ADV perspective, down to mid-single-digit declines in the month of December. So that trend continued to play out well.

Unnamed Speaker: We're going to see some tough comps, though, in the first quarter, so I wouldn't expect positive volume growth in Q1. We should start to see positive volume growth in Q2, and then certainly in the back half of the year as the comps change. S&B, Carol mentioned, is very focused on penetration on the S&B side, and specifically some of the medium S&B customers. We've stated we would like to see that mix trend up to 30%-plus. We finished the year at 28, so we're well on our way in that direction.

Unnamed Speaker: Maybe another comment because this is just an interesting observation on the market. If I look at our top five decliners in the, That would include our largest customer, and there's an intentional decline there. But if I look at the remaining decliners...,,,,,,, Of those, only one has diverted some volume. There are dual... and they have diverted some volume, and I suspect they'll stay dual. The rest, either their business is just way too..., or they have worked really hard to create a better experience inside the store to encourage customers to buy online.

Unnamed Speaker: So there is a bit of a dynamic happening within our large enterprise customers. I think for all of us, we're delighted to have anniversaried the demand that we saw through COVID. Now that that's behind us, now that the volume for the small package market has reverted back to the mean, this is an opportunity now for everyone to grow. Thank you both.

Unnamed Speaker: Thanks, Brandon. Our next question will come from the line of Helane Becker of TD Cowen. Please go ahead. Oh gosh, thanks very much everybody, and thanks team for the time. So, Coyote, when you did the acquisition, what did you think the benefits would be that made it important to do the acquisition, and then what really would happen? That is causing you to rethink how Coyote fits in the network. And my follow-up question is unrelated. You recently bought two 747-8 freighters, I saw, and I'm just wondering if you bought those off-lease or where they came from since Boeing doesn't make the 747 anymore.

Unnamed Speaker: Thank you. I'm happy to address the Coyote questions to the best of my ability. I was on the board in 2015 when we bought the company, but the strategic rationale was really about expanding the portfolio, and it was a very thoughtful strategic rationale to expand the portfolio. But I don't think we fully understood at the time just how cyclical this business is. And I'll make it real for you. When we acquired Coyote in 2015, the revenues for the previous year for Coyote were $2.1. During COVID, Coyote peaked up to over $4 billion in revenue.

Unnamed Speaker: Well, it's come way down since then. In fact, if you look at our supply chain solutions, this, it was down $3 billion year-on-year, which is a third of the overall company decline. Within that $3 billion, Coyote made up 38% of the decline for the year and 48% of the decline for the fourth quarter.

Unnamed Speaker: So you can see the volatility in the revenue line, and then we've got a business that has a very low return. So if you've got that kind of volatility on the revenue line, you're going to have even more volatility on the earnings line. So we're like, gosh, is there another way to skin this cat?

Unnamed Speaker: Can we think about an alternative that continues to allow us to provide the service but without all the overhead? Or perhaps this business is worth more to someone else than it is to us. We don't know. We don't know the outcome of our alternative work, but as soon as we do, we'll share that with you. And on the freighter question. So the two planes were picked up through Qatar, and really, it's part of a broader airline strategy to retire some of the MD-11s in terms of efficiency and sustainability.

Unnamed Speaker: Got it. Thank you. Thank you. Our next question will come from the line of Scott Group of Wolfer Research. Please go ahead. Hey, thanks. Good morning.

Scott H. Group: I just want to follow up on a couple of things on the guidance. Brian, I know you said 10% U.S. margin exiting the year. Any color on the shape of the year?

Unnamed Speaker: You also talked a couple times about just Q1 being hard. Any more specific comments on Q1? And then, just lastly, I know every year on this call you typically give an update on the biggest customer exposure. If you can give us an update there, thank you. Happy to, Scott. So, from a domestic margin perspective, we're looking at the back half of the year being in the range of, from an operating profit perspective, we're looking at 20 to 30% growth. Scott, from a margin, and from a margin, we'll be in the 10 to 10 plus range for the fourth quarter. The challenge we have is that in the first quarter, we actually expect to be down in the neighborhood. We had a low mortar mark in Q3 of last year, so we're not going to be down to that point, but I don't think we'll be much better from a margin perspective in the U.S. in the first quarter of this year. It just came down faster than Amazon.

Unnamed Speaker: Stephen, we have time for one more question. Our final question will come from the line of Jordan Alliger of Goldman Sachs. Please go ahead. Hi, morning.

So I was sort of thinking about the small package growth that you guys targeted at less than 1% this year. Pretty conservative after a couple years of, you know, probably negative industry growth as well. So I'm just sort of curious, what's informing that.

Unnamed Speaker: Is that your economic outlook, your forecast? And then... Maybe this is your analyst that you will address it, but sort of on a normalized basis, what kind of small package domestic growth, and underlying industry growth do you think about over a longer term basis? The longer term view is very good. It's 3%.

Unnamed Speaker: So that's really good growth, actually, and we're looking forward to getting into that growth mode. We use a number of external factors to inform our perspective on market growth.

Unnamed Speaker: We triangulate from a number of different angles to come up with our best view. This is our best. Thanks, George. I will now turn the floor back over to our host, Mr. P.J. Guyton.

Please go ahead. Thank you, Stephen. This concludes our call. Thank you for joining us and have a good day. Thank you. Bye, like, comment, and subscribe. You have reached a non-working member at UPS. Please hang up and dial 1-800-PICK-UPS. We're sorry, your conference is ending now. Please hang up.

Conference call all lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer period.

Speaker Change: Any analyst that wants to ask a question now is the time to press. The one then zero on your telephone keypad. It is now my pleasure to turn the floor over to your host Mr. P. J Geidel Investor Relations officer, Sir the floor is yours.

Speaker Change: Good morning, and welcome to the UBS fourth quarter 2023 earnings call.

Joining me today are Carl <unk>, our CEO, Brian Newman our CFO.

Speaker Change: A few additional members of our executive leadership team.

Speaker Change: 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 Change: These statements are subject to risks and uncertainties, which are described in our 2022 Form 10-K, and other reports, we filed with or furnished to the securities and Exchange Commission.

Speaker Change: These reports when filed are available on the UBS Investor Relations website and from the SEC.

Speaker Change: Unless stated otherwise are discussion refers to adjusted results for the fourth quarter of 2023 GAAP results include a noncash after tax mark to market pension charge of $274 million after tax transformation and other charges of 154 million.

Speaker Change: And a noncash after tax impairment charge of $84 million related to our Coyote trade name and our truckload brokerage unit <unk>.

Speaker Change: The after tax total for these items is $512 million or <unk> 60 per diluted share additional details regarding year end pension charges are included in the appendix of our fourth quarter 2023 earnings presentation that will be posted to the UBS Investor Relations website. Following this call a reconciliation to GAAP financial results.

Speaker Change: Golf is available on the EPS Investor Relations website and also available in the webcast of today's call.

Speaker Change: 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.

Speaker Change: These 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 and now I will turn the call over to Carol.

Carol: Thank you P J and good morning.

Let me begin by thanking <unk> for their hard work and effort.

Carol: Proud of our team for their commitment to customer service.

Carol: And for once again, making us the industry leader in on time performance not only during peak.

Carol: Through out 2023.

Carol: Looking at our volume trends for the fourth quarter, while total average daily volume or Adv declined seven 5% from last year.

Carol: Our performance was a marked improvement from what we reported in the third quarter.

Carol: During the fourth quarter, our salespeople did an outstanding job of winning back the aborted volume and pulling through new volume.

Carol: In fact U S domestic adv searched 30% from the third quarter to the fourth.

Carol: Which was our highest sequential volume ramp ever.

Carol: By the end of December we had one back and pull through nearly 60% of the volume diverted during our labor negotiation.

Carol: Winning back and winning new volume, it's part of a program we call project Brown and this program will continue into 'twenty 'twenty four.

Carol: Youll recall that at the end of the third quarter, we provided a range of expected revenue and operating profit for the fourth quarter.

Looking at our fourth quarter results versus last year consolidated revenue declined seven 8% to $24 $9 billion.

Carol: Which was slightly below the low end of our expectation.

Carol: Operating profit was $2 $8 billion.

Carol: Decrease of 27, 1% from last year, but slightly higher than the low end of our expectations.

Carol: As a result, our consolidated operating margin was 11, 2%, which was well within our expectation.

Carol: For the year consolidated revenue was $91 billion.

Carol: A decrease of nine 3%.

Carol: Consolidated operating profit totaled $9 9 billion 28, 7% lower than last year and consolidated operating margin was 10, 9%.

2%, which was well within our expectation.

Carol: We generated $5 3 billion and free cash flow during 2023.

For the year consolidated revenue was $91 billion, a decrease of nine 3%.

Carol: And we returned $7 6 billion to shareowners in the form of dividends and share repurchases.

<unk> operating profit totaled $9 9 billion $28, 7% lower than last year and consolidated operating margin was 10, 9%.

Carol: Brian will provide more detail about our financial results in a moment.

Carol: 2023 was a unique if I candidly a difficult and disappointing year.

We generated $5 $3 billion and free cash flow during 2023, and we returned $7 $6 billion to shareowners in the form of dividends and share repurchases.

Carol: We experienced declines in volume revenue and operating profit and all three of our business segments.

Carol: Some of this performance was due to the macro environment and some of it was due to the disruption associated with our labor contract negotiation.

Brian will provide more detail about our financial results in a moment.

2023 was a unique if I candidly a difficult and disappointing year.

Carol: As well as higher costs associated with the new contract.

Carol: Through the year. However, we controlled what we can control and in many areas. We delivered the highest productivity results in our company history.

We experienced declines in volume revenue and operating profit and all three of our business segments.

Some of this performance was due to the macro environment and some of it was due to the disruption associated with our labor contract negotiation as well as higher costs associated with the new contract.

Carol: And I think most importantly, we stayed on our strategy of customer first people led and innovation driven.

Let me share a few examples of how our strategy is establishing a foundation for future growth.

Through the year, However, we controlled what we could control.

Carol: Starting with customer first.

And in many areas, we delivered the highest productivity results in our company history.

Carol: In 2023, our health care portfolio achieved our target of $10 billion in revenue.

And I think most importantly, we stayed on our strategy of customer first people led and innovation driven.

Carol: Here, we've made strong progress towards our goal of becoming the number one complex health care provider in the growing $130 billion global health care logistics market.

Let me share a few examples of how our strategy is establishing a foundation for future growth.

Starting with customer first.

Carol: Our global network of healthcare compliant distribution space topped 17 million square feet in 2023 and.

In 2023, our health care portfolio achieved our target of $10 billion in revenue.

Here, we've made strong progress towards our goal of becoming the number one complex health care provider in the growing $130 billion global health care logistics market.

And our acquisitions of <unk> group and M N X global logistics.

Carol: We expanded our cold chain capabilities.

And are enabling us to reach new markets and customers.

Our global network of health care compliant distribution space topped 17 million square feet in 2023.

Carol: To support growth in our international small package business in December we announced plans to build a new air hub at Hong Kong International Airport. This new.

And our acquisitions of Boomy group and M N X global logistics have expanded our cold chain capabilities.

Air hub supports our plans to grow in the best parts of the market, including highly profitable Asia trade lanes.

And are enabling us to reach new markets and customers.

Carol: And will enable us to expand our export and import business in the region.

To support growth in our international small package business in December we announced plans to build a new air hub at Hong Kong International Airport.

Carol: During the year, we continue to grow our F&B penetration.

In 2023, Smbs made up 28, 6% of our total U S volume an increase of 60 basis points from last year.

This new air hub supports our plans to grow in the best parts of the market, including highly profitable Asia trade Lane.

Carol: Part of this growth came from DAP, our digital access program.

And will enable us to expand our export and import business in the region.

Carol: <unk> has transformed how small companies do business with U P F.

During the year, we continued to grow our F&B penetration.

Carol: And in 2023, we generated $2 $9 billion in DAP revenue, an increase of 22% year over year.

In 2023 F N B's made up 28, 6% of our total U S volume an increase of 60 basis points from last year.

Carol: Moving to people add in 2023, we delivered a labor agreement that provides certainty for the next five years.

Part of this growth came from DAP, our digital access program.

<unk> has transformed how small companies do business with U P F.

Carol: And because I'm, a big believer in the power of one UBS.

In 2023, we generated $2 $9 billion in DAP revenue, an increase of 22% year over year.

This year, we are returning to our policy of everyone back in the office five days a week.

Carol: In terms of our culture.

Moving to people led in 2023, we delivered a labor agreement that provides certainty for the next five years.

We are a network company not just of logistics capabilities.

Carol: Personal relationships too.

Carol: Which brings me to innovation driven.

And because I'm, a big believer in the power of one U P S.

Carol: On our busiest peak days, we sort over 50 million packages in the U S and deliver more than 30 million packages worldwide.

This year, we are returning to our policy of everyone back in the office five days a week.

In terms of our culture, we are a network company not just of logistics capabilities.

Carol: How do we do it by leveraging the agility of our integrated network powered by <unk> technology, and the skills of our engineers and operating team.

The personal relationships too.

Which brings me to innovation driven.

Carol: Our network planning tools enabled us to quickly match capacity with volume across the network and drive productivity.

On our busiest peak days, we sort over 50 million packages in the U S and deliver more than 30 million packages worldwide how.

Carol: Technology also enabled improvements to driver and help our route planning and dispatch, resulting in improvements in density and fewer seasonal support drivers than in prior year.

How do we do it.

Leveraging the agility of our integrated network powered by <unk> technology, and the skills of our engineers and operating team.

Our network planning tools enabled us to quickly match capacity with volume across the network and drive productivity.

Carol: It might surprise you to learn that we typically see an increase in returns volume before Christmas.

Carol: In the fourth quarter, we move lightning fast to integrate happy returns.

Knowledge, you also enabled improvements to driver and help our route planning and dispatch, resulting in improvements in density and fewer seasonal support drivers than in prior year.

Carol: We made box free label free returns available in over 5000, UBS store locations just eight days after the acquisition close.

It might surprise you to learn that we typically see an increase in returns volume before Christmas.

Happy returns digital experience helped drive returns volume in the fourth quarter.

Carol: With momentum extending into the first quarter of 2024.

In the fourth quarter, we moved lightning fast to integrate happy returns we.

Carol: Finally, we continue to deploy a transformative technology to increase efficiency within our warehousing facilities.

We made box free label free returns available in over 5000, UBS door locations just eight days after the acquisition close.

Carol: <unk> example is our state of the art pick pack and ship center in Louisville, Kentucky that we call UBS velocity.

Happy returns digital experience helped drive returns volume in the fourth quarter.

With momentum extending into the first quarter of 2024.

Carol: We named it velocity, because it leverages robotics automation machine learning and artificial intelligence to streamline to film it operation.

Finally, we continue to deploy a transformative technology to increase efficiency within our warehousing facilities.

Carol: This facility is capable of processing over 350000 units per day.

Latest example is our state of the art pick pack and ship center in Louisville, Kentucky that we call UBS velocity.

Carol: It enables a best in class experience for our customers and their customer.

Aimed at velocity, because it leverages robotics automation machine learning and artificial intelligence to streamline fulfillment operation.

Carol: Our customer first people led innovation driven strategy is the foundation of our business and.

Carol: And our continued execution of this strategy enabled us to exit 2023 with momentum.

This facility is capable of processing over 350000 units per day and enables a best in class experience for our customers and their customer.

Carol: But momentum is not enough.

We've decided to take some bold moves to rightsize, our company for the future and to focus on the key enablers of growth.

Our customer first people led innovation driven strategy is the foundation of our business.

So today, we are announcing two action.

And our continued execution of this strategy enabled us to exit 2023 with momentum.

Carol: First we plan to explore strategic alternatives for our truckload brokerage business known as Coyote.

But momentum is not enough.

Iot is part of supply chain solution and is a business that is highly cyclical with considerable earnings volatility.

Speaker Change: We've decided to take some bold moves to rightsize our company for the future.

Speaker Change: To focus on the key enablers of growth.

We will keep you apprised as we move forward with this analysis.

Speaker Change: So today, we are announcing two action.

Second we are going to fit our organization to our strategy and align our resources against what's wildly important.

Speaker Change: First we plan to explore strategic alternatives for our truckload brokerage business known as Coyote.

Speaker Change: Iot is part of supply chain solution.

Carol: This will result in a workforce reduction of approximately 12000 positions and around $1 billion in cost out this year.

Speaker Change: And as a business that is highly cyclical with considerable earnings volatility.

Speaker Change: We'll keep you apprised as we move forward with this analysis.

Carol: We've identified new ways of working and are calling this fit to search.

Speaker Change: Second we are going to fit our organization to our strategy and align our resources against whats wildly important.

Let me end by sharing our 2024 outlet.

Carol: 2020 for the small package market in the U S. Excluding Amazon is expected to grow by less than 1%.

Speaker Change: This will result in a workforce reduction of approximately 12000 positions and around $1 billion in cost out this year.

Carol: And projected market growth rates for the rest of our business segments.

Speaker Change: Here, we've identified new ways of working and are calling this debt to search.

Carol: Just some improvement, but not until the latter part of the year.

Speaker Change: Let me end by sharing our 2024 outlet.

Carol: In building, our 2024 financial targets, we anchored the low end of our guidance on market growth.

Speaker Change: In 2020 for the small package market in the U S. Excluding Amazon is expected to grow by less than 1%.

Carol: And for the high end of our guidance included growth, we should experience if we capture market share.

Speaker Change: And projected market growth rates for the rest of our business segments suggest some improvement, but not until the latter part of the year.

Carol: In 2024, we expect to generate consolidated revenue ranging from approximately $92 billion to $94 $5 billion and a consolidated operating margin ranging from approximately 10 to 10, 6%.

Speaker Change: In building, our 2024 financial targets, we anchor the low end of our guidance on market growth.

And for the high end of our guidance included growth, we should experience if we capture market share.

Carol: Given the nuances of our new labor contract there will be Stark contrast between our first half and our second half performance.

Speaker Change: In 2024, we expect to generate consolidated revenue ranging from approximately $92 billion to $94 $5 billion and a consolidated operating margin ranging from approximately 10 to 10, 6%.

Carol: First half earnings will be compressed and second half earnings will expand.

Carol: Both the low and high end of our guidance range, we expect to exit the year with a U S operating margin of 10%.

Given the nuances of our new labor contract there will be Stark contrast between our first half and our second half performance.

Carol: Brian will provide more details in a moment.

Carol: UBS remains rock solid strong.

Carol: While our dividend payout is currently higher than our targeted payout of 50% of our prior year's adjusted earnings per share were.

Speaker Change: First half earnings will be compressed and second half earnings will expand.

Speaker Change: And both the low and high end of our guidance range, we expect to exit the year with a U S operating margin of 10%.

Carol: We are confident in our future.

Carol: As a result, the UBS board approved a penny increase in the quarterly dividend from $1 62 per share to $1 63 per share.

Speaker Change: Ryan will provide more details in a moment.

Speaker Change: UBS remains rock solid strong while our dividend pay out is currently higher than our targeted payout of 50% of our prior year's adjusted earnings per share.

This is the 15th consecutive year, we have increased the dividend.

Carol: So now that 2023 is behind us.

Speaker Change: We are confident in our future.

Look forward to seeing you at our upcoming Investor and Analyst day on March 20th.

Speaker Change: As a result U B S Board approved a penny increase in the quarterly dividend from $1 62 per share to $1 63 per share.

At that time, we will share our three year plans to grow and drive shareowner value.

Speaker Change: This is the 15th consecutive year, we have increased the U P S dividend.

With that thank you for listening and now I'll turn the call over to Brian.

Brian: Thanks, Carol and good morning.

Speaker Change: So now that 2023 is behind US we look forward to seeing you at our upcoming Investor and analyst day on March 27.

Comments I will cover three areas, starting with the macro and our fourth quarter results. Then I'll review, our full year 2023 results, including cash and Shareowner returns and lastly, I'll provide comments on expectations for the market and our financial outlook for 2020 for the macro environment in the fourth quarter showed improvement however in the transportation and.

Speaker Change: At that time, we will share our three year plans to grow and drive shareowner value.

Speaker Change: With that thank you for listening and now I'll turn the call over to Brian.

Brian: Thanks, Carol and good morning.

Six sector conditions remained under pressure both in the U S and internationally due to soft demand and overcapacity in the market.

Brian: My comments I will cover three areas, starting with the macro and our fourth quarter results. Then I'll review, our full year 2023 results, including cash and Shareowner returns and lastly, I'll provide comments on expectations for the market and our financial outlook for 2020 for the macro environment in the fourth quarter showed improvement however in the transportation and.

Brian: Throughout the quarter, we leveraged the agility of our integrated network to match capacity with demand and we were recognized by an independent third party for providing industry, leading service for the six peak in a row.

Brian: Looking at our financial results in the fourth quarter consolidated revenue was $24 9 billion down seven 8% from the fourth quarter of 2022.

Brian: Six sector conditions remained under pressure both in the U S and internationally due to soft demand and overcapacity in the market.

Throughout the quarter, we leveraged the agility of our integrated network to match capacity with demand and we were recognized by an independent third party for providing industry, leading service for the six peak in a row.

Brian: All three of our segments demonstrated agility and on a combined basis drove down total expense by $1 1 billion in the fourth quarter year over year.

Brian: This enabled us to deliver operating profit within the range, we communicated to you last quarter.

Brian: Looking at our financial results in the fourth quarter consolidated revenue was $24 9 billion down seven 8% from the fourth quarter of 2022.

Brian: Holidayed operating margin was 11, 2% for the quarter and in line with our expectations.

Brian: All three of our segments demonstrated agility and on a combined basis drove down total expense by $1 1 billion in the fourth quarter year over year.

Brian: For the fourth quarter diluted earnings per share was $2 47 down 31, 8% from the fourth quarter of 2022.

Brian: Now, let's look at our business segments in U S. Domestic we knew going into the fourth quarter that volume would be ramping up off an exceptionally low third quarter R.

This enabled us to deliver operating profit within the range, we communicated to you last quarter.

Brian: Holidayed operating margin was 11, 2% for the quarter and in line with our expectations.

Brian: Our efforts to win back diverted volume and pull through new volume resulted in a record sequential volume surge.

Brian: For the fourth quarter diluted earnings per share was $2 47 down 31, 8% from the fourth quarter of 2022.

Brian: Throughout peak, we delivered excellent service to our customers while managing expenses.

Brian: Now, let's look at our business segments in U S. Domestic we knew going into the fourth quarter that volume would be ramping up off an exceptionally low third quarter R.

Brian: In the fourth quarter average daily volume came in at the low end of our range and was down seven 4% year over year.

<unk> average daily volume in the fourth quarter was down six 8% year over year, driven by declines in the retail manufacturing and high tech sectors.

Brian: Our efforts to win back diverted volume and pull through new volume resulted in a record sequential volume surge.

Brian: Throughout peak, we delivered excellent service to our customers while managing expenses.

Brian: In the fourth quarter <unk> represented 35, 5% of our volume, which was up slightly from 35, 3% in the same period last year.

In the fourth quarter average daily volume came in at the low end of our range and was down seven 4% year over year.

Brian: Also in the fourth quarter continued macro pressures drove customers to seek economy products as we saw customers shift volume out of the air onto the ground.

Brian: <unk> average daily volume in the fourth quarter was down six 8% year over year, driven by declines in the retail manufacturing and high tech sectors.

Brian: Total error average daily volume was down 15% year over year and ground average daily volume was down five 8% versus the fourth quarter of last year for.

Brian: In the fourth quarter <unk> represented 35, 5% of our volume, which was up slightly from 35, 3% in the same period last year.

Brian: For the quarter U S domestic generated revenue of $16 9 billion.

Brian: Also in the fourth quarter continued macro pressures drove customers to seek economy products as we saw customers shift volume out of the air onto the ground.

Brian: Down seven 3% revenue.

Revenue per piece was slightly positive year over year with a number of moving parts.

Brian: Total error average daily volume was down 15% year over year and ground average daily volume was down five 8% versus the fourth quarter of last year for.

Brian: A combination of strong base rates and customer mix increase the revenue per piece growth rate by about 390 basis points.

Brian: This was offset by a few factors first changes in product mix and package characteristics decreased the revenue per piece growth rate by 140 basis points.

Brian: For the quarter U S domestic generated revenue of $16 9 billion.

Brian: Down seven 3% Rev.

Revenue per piece was slightly positive year over year with a number of moving parts.

Brian: Reflecting the lower volume in the quarter peak season surcharge revenue declined which reduced the revenue per piece growth rate by about 120 basis points and lastly changes in fuel prices decreased the revenue per piece growth rate by 110 basis points.

Brian: A combination of strong base rates and customer mix increase the revenue per piece growth rate by about 390 basis points.

Brian: This was offset by a few factors first changes in product mix and package characteristics decrease the revenue per piece growth rate by 140 basis points.

Brian: Turning to cost total expense was down three 6%.

Brian: Second, reflecting the lower volume in the quarter peak season surcharge revenue declined which reduced the revenue per piece growth rate by about 120 basis points and lastly changes in fuel prices decrease the revenue per piece growth rate by 110 basis points.

And in the face of a 12, 1% increase in union wage rates, which was driven by the contractual increase that went into effect last August we pulled several levers to more than offset the higher expense.

Brian: First we leveraged our network planning tools and total service plan to reduce total hours in the fourth quarter by 10, 2%, which was more than the decline in average daily volume.

Brian: Turning to cost total expense was down three 6%.

Brian: And in the face of a 12, 1% increase in union wage rates, which was driven by the contractual increase that went into effect last August we pulled several levers to more than offset the higher expense.

Brian: This enabled us to decreased compensation and benefits, which drove down to total expense growth rate by around 30 basis points.

Brian: Lower purchase transportation expenditures reduce the expense growth rate by around 70 basis points, primarily from lower volume levels and our continued optimization efforts next lower fuel cost contributed 160 basis points to the decrease in the total expense growth rate.

Brian: First we leveraged our network planning tools and total service plan to reduce total hours in the fourth quarter by 10, 2%.

Brian: Which was more than the decline in average daily volume.

Brian: This enabled us to decreased compensation and benefits, which drove down the total expense growth rate by around 30 basis points.

And lastly, the net of all other expense items and allocations reduce the expense growth rate by 100 basis points.

Brian: Lower purchase transportation expenditures reduce the expense growth rate by around 70 basis points, primarily from lower volume levels and our continued optimization efforts next lower fuel cost contributed 160 basis points to the decrease in the total expense growth rate.

Brian: Altogether. These actions helped us reduce U S domestic expense in the fourth quarter by $578 million, which was our largest fourth quarter dollar cost reduction ever.

Brian: Looking specifically at peak as volume returned to the network and our biggest customers drove a surge in peak volume we ran our integrated network with agility in fact in 2023, we closed over 30 sorts and they remained closed during peak.

Brian: And lastly, the net of all other expense items and allocations reduce the expense growth rate by 100 basis points.

Brian: Altogether. These actions helped us reduce U S domestic expense in the fourth quarter by $578 million, which was our largest fourth quarter dollar cost reduction ever.

Brian: By leveraging our network planning tools, we took advantage of the flexibility of our integrated networks and flowed more volume into our automated buildings.

Looking specifically at peak as volume returned to the network and our biggest customers drove a surge in peak volume we ran our integrated network with agility in fact in 2023, we closed over 30 sorts and they remained closed during peak.

Brian: And with Smart package smart facility and over 1000 buildings misled frequency improved 67% contributing to the superior service, we deliver to our customers.

Brian: The U S. Domestic segment delivered $1 6 billion and operating profit down 32, 6% compared to the fourth quarter of 2022.

By leveraging our network planning tools, we took advantage of the flexibility of our integrated networks and flowed more volume into our automated buildings.

Brian: However, compared to the third quarter of 2023 operating profit in U S. Domestic increased $904 million and was our highest sequential operating profit increase ever.

Brian: And with Smart package smart facility and over 1000 buildings Ms slowed frequency improved 67% contributing to the superior service, we deliver to our customers.

Brian: Getting margin in the fourth quarter was nine 3% or 440 basis point improvement over the third quarter of 2023.

Brian: The U S. Domestic segment delivered $1 6 billion and operating profit down 32, 6% compared to the fourth quarter of 2022.

Moving to our international segment soft demand continued to pressure volumes out of Asia and in Europe. Several key economies remain in recession, which pressured demand and drove a shift away from express services and response, we focus on revenue quality and adjusted our global network to match changes in geographic demand.

Brian: However, compared to the third quarter of 2023 operating profit in U S. Domestic increased $904 million and was our highest sequential operating profit increase ever.

Brian: Operating margin in the fourth quarter was nine 3% or 440 basis point improvement over the third quarter of 2023.

Brian: Looking at volume in the fourth quarter International total average daily volume was down eight 3% year over year the decline was.

Moving to our international segment soft demand continued to pressure volumes out of Asia and in Europe. Several key economies remain in recession, which pressured demand and drove a shift away from express services and response, we focus on revenue quality and adjusted our global network to match changes in geographic demand.

Brian: Primarily due to lower domestic average daily volume, which was down 10, 8% driven by declines in Europe, and Canada areas of the world that continue to face persistent inflationary pressures.

On the export side total average daily volume declined five 9% on a year over year basis, driven by declines in Europe due to weak macro conditions looking at Asia export average daily volume was down eight 9% driven by soft demand in the retail and high tech sectors.

Brian: Looking at volume in the fourth quarter International total average daily volume was down eight 3% year over year. The decline was primarily due to lower domestic average daily volume, which was down 10, 8% driven by declines in Europe, and Canada areas of the world that continue to face persistent inflationary pressures.

Export volume on the China to U S Lane, which is our most profitable lane increased two 7% driven by Smbs nearly offsetting the decline in Asia over in the Americas region export average daily volume grew 11, 9% led by customers in Canada, and Mexico, leveraging our cross border ground service.

Brian: On the export side total average daily volume declined five 9% on a year over year basis, driven by declines in Europe due to weak macro conditions looking at Asia export average daily volume was down eight 9% driven by soft demand in the retail and high tech sectors. However, export volume on the China to U S Lane, which is our.

In the fourth quarter International revenue was $4 6 billion, which.

Brian: Most profitable lane increased two 7% driven by Smbs.

Brian: Which was down six 9% from last year, primarily due to the decline in volume.

Brian: Nearly offsetting the decline in Asia over in the Americas region export average daily volume grew 11, 9% led by customers in Canada, and Mexico, leveraging our cross border ground service.

Brian: Revenue per piece increased three 1%.

Brian: Strong base pricing and a change in customer mix drove a 420 basis point increase in the revenue per piece growth rate.

Brian: In the fourth quarter International revenue was $4 6 billion.

Brian: A reduction in fuel surcharge revenue negatively impacted the revenue per piece growth rate by 60 basis points.

Brian: It was down six 9% from last year, primarily due to the decline in volume.

Brian: And lower demand related surcharge revenue, which was partially offset by the impact of a weaker U S. Dollar decreased the revenue per piece growth rate by 50 basis points.

Revenue per piece increased three 1%.

Brian: Strong base pricing and a change in customer mix drove a 420 basis point increase in the revenue per piece growth rate.

Brian: Moving to expense in the fourth quarter total international expense was down $152 million, primarily driven by lower fuel expense. Additionally.

Brian: A reduction in fuel surcharge revenue negatively impacted the revenue per piece growth rate by 60 basis points and lower demand related surcharge revenue, which was partially offset by the impact of a weaker U S. Dollar decreased revenue per piece growth rate by 50 basis points.

Brian: Additionally, in response to the lower demand environment, we managed our network to match capacity with demand, which included reducing international block hours by nine 4%.

Brian: Operating profit in the international segment was $899 million down $192 million year over year.

Brian: Moving to expense in the fourth quarter total international expense was down $152 million.

Brian: Primarily driven by lower fuel expense.

Operating margin in the fourth quarter was 19, 5%.

Brian: Additionally, in response to the lower demand environment, we managed our network to match capacity with demand, which included reducing international block hours by nine 4%.

Brian: Now looking at supply chain solutions in the fourth quarter revenue was $3 4 billion.

Down $435 million year over year.

Brian: Operating profit in the international segment was $899 million.

Brian: Looking at the key drivers and international Airfreight overall volumes were down despite a mid quarter Spike in E Commerce.

Down $192 million year over year.

Operating margin in the fourth quarter was 19, 5%.

Brian: Rates continued to be pressured, resulting in lower revenue and operating profit.

Brian: Now looking at supply chain solutions in the fourth quarter revenue was $3 4 billion.

Brian: On the Ocean side volume increase driven by the retail sector, however, excess market capacity pressured revenue and operating profit.

Brian: Down $435 million year over year.

Brian: Looking at the key drivers in international Airfreight overall volumes were down despite a mid quarter Spike in E Commerce.

Brian: Within forwarding, our truckload brokerage unit known as Coyote continued to face pressure from excess capacity in the market, which drove revenue and operating profit down.

Brian: Rates continued to be pressured, resulting in lower revenue and operating profit.

Brian: In the fourth quarter supply chain solutions generated operating profit of $319 million and an operating margin of nine 4%.

Brian: On the Ocean side volume increase driven by the retail sector, however, excess market capacity pressured revenue and operating profit.

Brian: Walking through the rest of the income statement, we had $207 million of interest expense or other pension income was $66 million and our effective tax rate for the fourth quarter was 22, 5%.

Brian: Within forwarding, our truckload brokerage unit known as Coyote continued to face pressure from excess capacity in the market, which drove revenue and operating profit down.

Brian: In the fourth quarter supply chain solutions generated operating profit of $319 million and an operating margin of nine 4%.

Brian: Now, let me comment on our full year 2023 results for the full year 2023 revenue declined nine 3% to 91 billion.

Brian: Walking through the rest of the income statement, we had $207 million of interest expense or other pension income was $66 million and our effective tax rate for the fourth quarter was 22, 5%.

Brian: And we generated operating profit of $9 9 billion.

Brian: A decrease of 28, 7% compared to full year 2022.

Brian: Consolidated operating margin was 10, 9% we.

Brian: Now, let me comment on our full year 2023 results for the full year 2023 revenue declined nine 3% to $91 billion and we generated operating profit of $9 9 billion.

Brian: We generated $10 2 billion in cash from operations and continue to follow our capital allocation priorities we.

We invested $5 2 billion in Capex. Additionally, we acquired <unk> global logistics and happy returns.

Brian: A decrease of 28, 7% compared to full year 2022.

Brian: We distributed $5 4 billion and dividends, which represented a six 6% increase on a per share basis over 2022.

Brian: Consolidated operating margin was 10, 9% we.

Brian: We generated $10 $2 billion in cash from operations and continue to follow our capital allocation priorities we.

Brian: We repaid $2 4 billion in debt that matured during the year and at the end of the year our debt to EBITDA ratio was two two turns.

Brian: We invested $5 2 billion in Capex. Additionally, we acquired <unk> global logistics and happy returns.

Brian: Lastly, we completed 225 billion in share buybacks in 2023.

Brian: We distributed $5 4 billion and dividends, which represented a six 6% increase on a per share basis over 2022.

Brian: And in the segments for the full year in.

Brian: In U S domestic operating profit was $5 4 billion.

Brian: We repaid $2 4 billion in debt that matured during the year and at the end of the year our debt to EBITDA ratio was two two turns lash.

Brian: And operating margin was 9% the.

Brian: The International segment generated $3 3 billion and operating profit and operating margin was 18, 4%.

Lastly, we completed 225 billion in share buybacks in 2023.

Brian: And supply chain solutions delivered operating profit of $1 2 billion.

Brian: And in operating margin was 9%.

Speaker Change: And then the segments for the full year in.

Speaker Change: In U S domestic operating profit was $5 4 billion.

Brian: With 2023 behind Us, let us move to our outlook for 2024.

Speaker Change: And operating margin was 9% the.

Brian: S&P global is forecasting an improvement in global macro conditions as the year progresses.

Speaker Change: The International segment generated $3 3 billion and operating profit and operating margin was 18, 4%.

Brian: Outside the U S real exports in Europe are expected to improve each quarter throughout the year.

And supply chain solutions delivered operating profit of $1 $2 billion and an operating margin was 9%.

Brian: Looking at Asia, we saw positive momentum on the China to U S lean exiting the year and remain cautious on the outlook for 2024.

Speaker Change: With 2023 behind Us, let us move to our outlook for 2024.

In the U S. The projected small package market growth rate is just under 1% excluding Amazon.

Speaker Change: S&P global is forecasting an improvement in global macro conditions as the year progresses.

Speaker Change: Outside the U S real exports in Europe are expected to improve each quarter throughout the year.

Brian: A slight improvement is expected in U S manufacturing and the consumer is expected to remain resilient despite lingering inflationary pressures.

Looking at Asia, we saw positive momentum on the China to U S lean exiting the year and remain cautious on the outlook for 2024.

Brian: We've built a plan that reflects the current environment and potential risks that we see this includes getting our organization to our strategy and aligning execution to our wildly important initiatives under what we call fit to serve.

Speaker Change: In the U S. The projected small package market growth rate is just under 1% excluding Amazon.

Speaker Change: Slight improvement is expected in U S manufacturing and the consumer is expected to remain resilient despite lingering inflationary pressures.

Brian: As Carol mentioned, we are exploring strategic alternatives for Coyote truckload brokerage business, which will enable us to address some of the cyclical impacts and our forwarding business.

Speaker Change: We've built a plan that reflects the current environment and potential risks that we see this includes fitting our organization to our strategy and aligning execution to our wildly important initiatives under what we call fit to serve.

Brian: And we are reducing our workforce by approximately 12000 positions.

Brian: This will cut around $1 billion in costs in 2024.

Brian: Moving to our 2024 financial outlook, we are providing a range based on volume growth.

Speaker Change: As Carol mentioned, we are exploring strategic alternatives for Coyote, our truckload brokerage business, which will enable us to address some of the cyclical impacts and our forwarding business.

Brian: The low end of the range as EPS growing at market rate and the high end of the range as us gaining share.

Speaker Change: And we are reducing our workforce by approximately 12000 positions.

Brian: For the full year 2024 on a consolidated basis revenues are expected to range from approximately <unk> $92 billion to $94 5 billion and operating margin is expected to range from approximately 10 to 10, 6%.

This will cut around $1 billion in cost in 2024.

Speaker Change: Moving to our 2024 financial outlook, we are providing a range based on volume growth.

The low end of the range as UBS growing at market rate and the high end of the range as us gaining share.

In the range provided we expect to move total average daily volume from negative growth in the first half of the year to positive growth in the back half.

Speaker Change: For the full year 2024 on a consolidated basis revenues are expected to range from approximately <unk> $92 billion.

Brian: This is primarily driven by lapping the volume diversion, we experienced in the U S last year during our labor negotiations.

To $94 5 billion.

Speaker Change: And operating margin is expected to range from approximately 10 to 10, 6%.

Brian: Additionally, cost will weigh on us in the first half of the year, primarily due to the high labor cost inflation associated with the new contract.

Speaker Change: In the range provided we expect to move total average daily volume from negative growth in the first half of the year to positive growth in the back half.

Brian: Looking at consolidated revenue in the first half of the year, we expect the growth rate to decline within a range of approximately 1% to 2% with the first quarter driving the decline.

Speaker Change: This is primarily driven by lapping the volume diversion, we experienced in the U S last year during our labor negotiations.

Additionally, cost will weigh on us in the first half of the year, primarily due to the high labor cost inflation associated with the new contract.

Brian: And in the back half of the year revenue growth is anticipated to be up within our range of mid to high single digits.

Brian: Looking at consolidated operating profit, we expect material improvement as the year progresses with the second half of the year outperforming the first half.

Speaker Change: Looking at consolidated revenue in the first half of the year, we expect the growth rate to decline within a range of approximately 1% to 2% with the first quarter driving the decline.

Brian: Lastly, we expect to generate our lowest consolidated operating margin of the year in the first quarter.

And in the back half of the year revenue growth is anticipated to be up within our range of mid to high single digits.

Now, let me give you a little color on the segments.

Brian: Looking at U S. Domestic average daily volume growth is expected to be within a range of approximately flat to up 2% for the full year.

Looking at consolidated operating profit, we expect material improvement as the year progresses with the second half of the year outperforming the first half.

Brian: At both the low and high ends of the range. We expect the revenue per piece growth rate to outpace the cost per piece growth rate beginning in the third quarter and we expect to exit the year at a 10% operating margin.

Speaker Change: Lastly, we expect to generate our lowest consolidated operating margin of the year in the first quarter.

Now, let me give you a little color on the segments.

Brian: Moving to the International segment, we expect 2024 average daily volume to be within a range of approximately flat to up around 3%.

Speaker Change: Looking at U S. Domestic average daily volume growth is expected to be within a range of approximately flat to up 2% for the full year.

At both the low and high ends of the range. We expect the revenue per piece growth rate to outpace the cost per piece growth rate beginning in the third quarter and we expect to exit the year at a 10% operating margin.

Brian: At both ends of the guidance range operating margin is anticipated to be in the high teens.

Brian: And in supply chain solutions for the full year in 2024, we expect revenue to be within a range of approximately 13% to $13 5 billion.

Speaker Change: Moving to the International segment, we expect 2024 average daily volume to be within a range of approximately flat to up around 3%.

At both ends of the guidance range operating margin for SCS is expected to be high single digits.

Speaker Change: At both ends of the guidance range operating margin is anticipated to be in the high teens.

And for modeling purposes in total below the line, we expect approximately $400 million in expense in 2024.

Speaker Change: And in supply chain solutions for the full year in 2024, we expect revenue to be within a range of approximately $13 to $13 5 billion.

Brian: This is net of $262 million in pension income.

Brian: We included a slide in the appendix of todays webcast deck to provide you more detail on pension.

At both ends of the guidance range operating margin for SCS is expected to be high single digits.

Brian: The webcast deck will be posted to the <unk> Investor Relations website. Following this call.

Speaker Change: And for modeling purposes in total below the line, we expect approximately $400 million in expense in 2024.

Now, let's turn to full year 2020 for capital allocation are.

Brian: Our capital allocation priorities have not changed we are staying on strategy and we will make the best long term decisions to capture growth improve efficiency and deliver value to our shareowners we.

This is net of $262 million in pension income.

Speaker Change: We included a slide in the appendix of todays webcast deck to provide you more detail on pension.

The webcast deck will be posted to the UBS Investor Relations website. Following this call.

Brian: We expect 2020 for capital expenditures to be within our target of around 5% of revenue or $4 5 billion.

Speaker Change: Now, let's turn to full year 2024 capital allocation or.

Brian: Now, let's turn to our expectations for cash in the balance sheet.

Speaker Change: Our capital allocation priorities have not changed we are staying on strategy and we'll make the best long term decisions to capture growth improve efficiency and deliver value to our shareowners we.

We expect free cash flow to be within a range of approximately four five to $5 $3 billion, including our annual pension contributions of $1 4 billion, which are equal to our expected service costs as Carol mentioned the board has approved a dividend per share of $1 63 for the first quarter, we are planning to pay out around.

Speaker Change: We expect 2020 for capital expenditures to be within our target of around 5% of revenue or $4 5 billion.

Speaker Change: Now, let's turn to our expectations for cash and the balance sheet.

Brian: $5 4 billion in dividends in 2024 subject to board approval.

Speaker Change: We expect free cash flow to be within a range of approximately four 5% to five $3 billion, including our annual pension contributions of $1 4 billion, which are equal to our expected service costs as Carol mentioned the board has approved a dividend per share of $1 63 for the first quarter, we are planning to pay out around.

Brian: Finally, our effective tax rate in 2024 is expected to be approximately 23, 5%.

Brian: In closing we look at 2024 is a year to pivot away from negative volume to positive volume growth.

Brian: And from high labor cost inflation to a much lower growth rate. We are laser focused on executing our strategy controlling what we can control and improving our financial performance. We look forward to sharing our multiyear targets and details on our strategy at our Investor Day event on March 26, Thank you and operator, please open the lines.

$5 4 billion in dividends in 2024 subject to board approval.

Speaker Change: Finally, our effective tax rate in 2024 is expected to be approximately 23, 5%.

Speaker Change: In closing we look at 2024 is a year to pivot away from negative volume to positive volume growth.

Speaker Change: And from high labor cost inflation to a much lower growth rate. We are laser focused on executing our strategy controlling what we can control and improving our financial performance. We look forward to sharing our multiyear targets and details on our strategy at our Investor Day event on March 26, Thank you and operator, please open the lines.

Speaker Change: Thank you we will now conduct a question and answer session. Our first question will come from the line of Chris Wetherbee of Citigroup. Please go ahead.

Yeah, Hey, thanks, good morning, guys.

I guess I wanted to start on maybe some of the cost out you mentioned the 12000 physicians that you're using in the $1 billion of costs. In 2024, I was hoping maybe you could help us sort of understand the timing of that so based on the 10% kind of run rate exiting 'twenty four it would imply that the first quarter is fairly low so I guess I just wanted to make sure it.

Speaker Change: Thank you we will now conduct a question and answer session. Our first question will come from the line of Chris Wetherbee of Citigroup. Please go ahead.

Chris Wetherbee: Yeah, Hey, thanks, good morning, guys.

Speaker Change: And some of those moving pieces and when that 1 billion is going to start to accrue.

I guess I wanted to start on maybe some of the cost out you mentioned that 12000 physicians that you were using a $1 billion of costs. In 2024, I was hoping maybe you could help us sort of understand the timing of that so based on the 10% kind of run rate exiting 'twenty four it would imply that the first quarter is fairly low so I just I just want to make sure it under.

Speaker Change: Sure happy to give you some color. So we talked about 12000 heads out 75% of the reductions will come in the first half, which drive that's $1 billion in the 2024 calendar year, but you're absolutely right in terms of the timing and announcements it'll be back end weighted.

Some of those moving pieces and when that $1 billion I'm going to start to accrue.

Speaker Change: And really the thing I'd like to point out it is a change in the way we work so.

Speaker Change: Sure happy to give you some color. So we talked about 12000 heads out 75% of the reductions will come in the first half, which drive that to $1 billion in the 2024 calendar year, but you're absolutely right in terms of the timing and announcements.

Speaker Change: As volume returns to the system. We don't expect these jobs to come back it's changing the effective way that we operate.

Speaker Change: I might just add a little more color if I could.

Speaker Change: Yes.

Speaker Change: Today, we have about 495000 ups's around the world a few years ago.

Speaker Change: It'll be backend weighted.

And really the other thing I'd like to point out it's a change in the way we work so.

When the Covid demand, we had 540000 UBS.

Speaker Change: As volume returns to the system. We don't expect these jobs to come back it's changing the effective way that we operate.

Speaker Change: Now that we have done a masterful job of managing our operational head count to make the volume in our company and they've done that by managing.

I might just add a little more color if I could Chris.

Speaker Change: Today, we have about 495000 ups's around the world a few years ago.

Speaker Change: Turnover and attrition and closing sorts and reducing work hours et cetera.

Speaker Change: When the Covid demand, we had 540000 UBS.

Speaker Change: We have about 85000 geo cancers to our management and this can be full time in tech management.

Speaker Change: Now that we have done a masterful job of managing our operational head count to meet the volume in our symphony and they've done that by managing.

Speaker Change: The targeted head count falls really within that growth as well as some contract that won't be leaving.

Speaker Change: And to Brian's point. This is really about a new way of working so it's $1 billion of cost out.

Speaker Change: Turnover and attrition and closing sorts and reducing work hours et cetera.

Now, but theres, even more comes down to timing as we have a full year benefit in 2020.

Speaker Change: We have about 85000, UK answers to our management and this can be a full time and care management.

Speaker Change: Thank you.

Speaker Change: Our next question will come from the line of David Vernon of Bernstein. Please go ahead.

The targeted head count falls really within that group as well as some contract.

David Vernon: Hey, good morning, guys and thanks for taking the question. So just wanted to ask on the productivity side, obviously hours down more than volume. We've had a couple of quarters of that obviously not in the third quarter. This year is there a point where where volume.

And to Brian's point. This is really about a new way of working so it's $1 billion of cost out.

Speaker Change: Now, but theres, even more cost down to Tommy.

Speaker Change: Full year benefits in 2020.

Speaker Change: Thank you.

David Vernon: Declines are become more difficult.

Speaker Change: Our next question will come from the line of David Vernon of Bernstein. Please go ahead.

I'm just trying to understand the downside risk rate at volumes continue to remain flat.

Hey, good morning, guys and thanks for taking the question. So just wanted to ask on the on the productivity side, obviously hours down more than volume. We've had a couple of quarters of that obviously not not the third quarter. This year is there a point where where volume.

David Vernon: Or weaker than you expect how should we be thinking about the downside risk on the margin side.

Speaker Change: So we believe that productivity is a virtuous cycle here at UBS and I'll give you. One example that I'm going to turn it over to Amanda to address this but if I look at just one metric cube utilization.

Speaker Change: Declines are become more difficult to offset I'm, just trying to understand the downside risk rate if volumes continue to remain flat.

Amanda: We reached the highest utilization in our company history at 60%, that's the equivalent of reducing 1500 loads per day.

Speaker Change: Or weaker than you expect how should we be thinking about the downside risk on the margin side.

So we believe that productivity is a virtuous cycle here at UBS and I will give you. One example that I'm going to turn it over to nando to address this but if I look at just one metric cube utilization.

Amanda: Hours.

Amanda: Yes.

So we've got productivity across the operations and Nando why don't you talk about what youre going to do in 'twenty, yes. So David Thanks for the question.

Nando: We reached the highest utilization in our company history at 60%, that's the equivalent of reducing 1500 loads per day.

Nando: For us it is a virtuous cycle. So we're working ahead of any type of volume variability so whether it goes up or.

Nando: We're down we've got some of our best Engineers operations folks finance folks identifying additional cost outs as we move forward as we're executing the ones that we have in front of us. So we feel good that there's a good pipeline.

Nando: Our.

Nando: So we've got productivity across the operations and Nevertheless, you talk about what youre going to do in 'twenty, yes. So David Thanks for the question.

Nando: For us it is a virtuous cycle. So we're working ahead of any type of volume variability so whether it goes up or.

Nando: Of opportunity no matter, what the volume does and as Carol had mentioned we lever.

Nando: Our hourly head count and match that to the volume and the activity and so far so good but still lots in front of us and they're pretty meaty. So we feel really good about those initiatives.

Speaker Change: We're down we've got some of our best Engineers operations folks finance folks identifying additional cost outs as we move forward as we're executing the ones that we have in front of us. So we feel good that there's a good pipeline.

At our Investor Day in March we're going to talk to you about network of the future. We've got it integrated network, we don't have to integrate but we can we can transform our network with some very exciting ideas. So we're going to share that with you in March.

Speaker Change: Of opportunity no matter, what the volume does and as Carol had mentioned we lever.

Speaker Change: Our hourly head count and match that to the volume and the activity and so far so good but still lots in front of us and Theyre pretty meaty. So we feel really good about those initiatives.

Nando: And the rate of which resource needs is going to need to be added back on the other side was maybe we get some volume expansion can you talk to that.

Speaker Change: At our Investor Day in March we're going to talk to you about.

Nando: Expectations for operating leverage on the upside.

Speaker Change: Network of the future we've got it integrated network, we don't have to integrate but we can we can transform our network with some very exciting ideas. So we're going to share that with you in March.

Nando: Yes.

Nando: I think as we as we look to the back end of the year certainly the volume projections that are in there in terms of the volume growth for the back end of the year in that 2% to 4% range domestically, we start to see CPP growing slower than RPT and so that balance is what's going to create the operating margin. We the sorts we closed over 30 sorts did not reopen them.

Speaker Change: And the rate of which resource needs is going to need to be added back on the other side was you know maybe we get some volume expansion can you talk to that.

Speaker Change: Expectations for operating leverage on the upside.

Speaker Change: Yep.

Peak, so we're changing Mendoza, an effective job of basically managing more volume with less so we will continue to drive that.

I think as we as we look to the back end of the year certainly the volume projections that are in there in terms of the volume growth for the back end of the year in that 2% to 4% range domestically, we start to see CPP growing slower than RPT and so that balance is what's going to create the operating margin. We the sorts. We closed over 30 sorts did not reopen them during peak.

Speaker Change: Alright, Thank you guys.

Speaker Change: Thanks.

Speaker Change: Next question will come from the line of Amit Mehrotra of Deutsche Bank. Please go ahead.

Amit Mehrotra: Thanks to everyone I just wanted to Brian on the guidance I guess the guidance implies nine 6 billion and operating profits.

So we're changing Mendoza, an effective job of basically managing more volume with less so we will continue to drive that.

Amit Mehrotra: You've been pretty helpful. Historically about giving us kind of a first half second half cadence of that and then and then just related to that I want to I want to make sure. So you said the $1 billion is included in the guidance.

Speaker Change: Alright, Thank you guys.

Speaker Change: Thanks.

Speaker Change: Next question will come from the line of Amit Mehrotra of Deutsche Bank. Please go ahead.

Thanks to everyone I just wanted to Brian on the guidance I guess the guidance implies nine 6 billion and operating profits.

Amit Mehrotra: Can you just expand on that a little bit because if I take out the $1 billion. The implied change in profits relative to the improvement in revenues quite a bit worse. So I'm just trying to understand.

Amit Mehrotra: You've been pretty helpful. Historically about giving us kind of a first half second half cadence of that and then and then just related to that I Wonder I want to make sure. So you said the $1 billion is included in the guidance.

Amit Mehrotra: What's actually included in the guidance in the $1 billion.

How that kind of translates to what you're assuming underneath them towards the change your profit relative to revenue sure happy to so from a shape of the year perspective, the full year, we called revenue at 1% to 4%, but the based on lapping of the volumes and the contract overlap we would expect revenue.

Hum.

Amit Mehrotra: Can you just expand on that a little bit because if I take out the $1 billion. The implied change in profits relative to the improvement of revenues quite a bit worse. So I'm just trying to understand.

Amit Mehrotra: What's actually included in the guidance in the $1 billion and how that how that kind of translates to what you're assuming underneath it in terms of the change your profit road UGG revenue sure happy to so from a shape of the year perspective, the full year, we called revenue at 1% to 4%, but the based on lapse.

To be flat to down two in the first half up 4% to eight in the back half and from a profit perspective, I had mentioned that.

Amit Mehrotra: It's a tale of two cities in terms of halves of the year. The second half of the year, we would expect profit to grow about 20% to 30%. So Q1 will be the biggest challenge because we're lapping from a volume comp perspective, and a full contract but on a full year basis. We're looking at op margin, 10% to $10. Six I think you can expect the second half of the year to be.

Amit Mehrotra: Are the volumes and the contract overlap we would expect revenue to be flat to down two in the first half up 4% to eight in the back half and from a profit perspective, I had mentioned that.

Amit Mehrotra: 11% to 12 in that range and you can back into the first half.

Amit Mehrotra: It's a tale of two cities in terms of halves of the year. The second half of the year, we would expect profit to grow about 20% to 30%. So Q1 will be the biggest challenge because we're lapping from a volume comp perspective, and a full contract but on a full year basis. We're looking at op margin, 10% to 10 six I think you can expect the second half of the year to be.

In terms of your question of backing out the $1 billion cost that $1 billion will be a cost benefit in 2024, but I think we've said in the past it would take 12 months to digest the new labor costs. We are confident we can get back to consistent expansion of the U S margins as we lap the first year of the contract that will be a combination of pricing and productivity. So so net net it's really lapping.

Amit Mehrotra: An 11 to 12 in that range and you can back into the first half.

Amit Mehrotra: That contract and then you start to get the benefits as Carol said some of those benefits would accrue over to 2025 as well.

Amit Mehrotra: In terms of your question of backing out the $1 billion cost at 1 billion will be a cost benefit in 2024, but I think we've said in the past it would take 12 months to digest the new labor costs. We are confident we can get back to consistent expansion of the U S margins as we lap the first year of the contract that will be a combination of pricing and productivity. So so net net it's really lap.

And are we done there on the 1 billion or is there like there's $55 billion in total cost I mean are we just getting started or like what's the actual opportunity there beyond the $1 billion.

Amit Mehrotra: So Carol talked about the differences between the Nando in case any of the operating cost and what we're talking about management head count. If you bifurcate. The two I think youre going to hear more at the Investor day through things like network of the future. How we go after additional head count in that area, but this would be about a 14% reduction in that 85000 heads.

Amit Mehrotra: That contract and then you start to get the benefits as Carol said some of those benefits would accrue over to 2025 as well.

Speaker Change: And are we done there on the $1 billion or is there like there's $55 billion in total cost I mean are we just getting started or like what's the actual opportunity there beyond the $1 billion.

Amit Mehrotra: We're never done we continue to drive productivity as a virtuous cycle here and technology has changed so much in the past year. When you think about the advent of generative AI and the applications inside of our business.

Speaker Change: So Carol talked about the differences between the Nando in case of the operating cost and what we're talking about management head count. If you bifurcate. The two I think youre going to hear more at the Investor day through things like network of the future. How we go after additional head count in that area, but this would be about a 14% reduction in that 85000 heads.

Amit Mehrotra: We're just getting started and I'm really excited about what the future will mean in terms of driving productivity and as well as improving the customer experience.

Speaker Change: We're never done we continue to drive productivity as a virtuous cycle here and technology has changed so much in the past year. When you think about the advent of generative AI and the applications inside of our business.

Speaker Change: Thank you very much thanks, Amit.

Speaker Change: Our next question will come from the line of Conor Cunningham with Melius Research. Please go ahead.

Conor Cunningham: Hi, everyone just to stick with the productivity side, you've been obviously pretty dynamic with your network and you mentioned I think 30 closed store closures and whatnot can you just talk about that.

Speaker Change: We're just getting started and I'm really excited about what the future will mean in terms of driving productivity and as well as improving the customer experience.

Speaker Change: Thank you very much thanks, so much.

Conor Cunningham: A consolidation opportunity in 'twenty, four and how that May play out to drive further efficiencies in the business. Thank you.

Speaker Change: Our next question will come from the line of Conor Cunningham with Melius Research. Please go ahead.

Speaker Change: We'd be happy to do that but we're going to kick that question to our March conference because we've got a great presentation to share with you regarding network of the future and it would take us way too much time today to go through that we want to spend a good amount of time talking to you about that in March. So thank you for understanding thanks Connor.

Hi, everyone just to stick with the productivity side, you've been obviously pretty dynamic with your network and you mentioned I think 30 closed store closures and whatnot can you just talk about that.

A consolidation opportunity in 'twenty, four and how that May play out to drive further efficiencies in the business. Thank you.

Our next question will come from the line of Allison Pollinium of Wells Fargo. Please go ahead.

We'd be happy to do that but we're going to kick that question to March timeframe, because we've got a great presentation to share with you regarding network of the future and it would take us way too much time today to go through that we want to spend a good amount of time talking to you about that in March. So thank you for understanding thanks Connor.

Allison Pollinium: Hi, good morning.

Allison Pollinium: Just want a turnkey the growth aspect of it I guess more specifically the market share capture could you maybe walk through the different levers you have in terms of I know you mentioned Patrick Brown your ability to recapture diversion diverted volume, but also you know talking to you the F&B penetration new opportunity in the health care side, just any color in terms of where those are.

Our next question will come from the line of Allison Pollinium of Wells Fargo. Please go ahead.

Allison M. Landry: Hi, good morning.

Members can meet.

Allison M. Landry: Just want a turnkey the growth aspect of it I guess more specifically the market share capture could you maybe walk through the different levers in terms of I know you mentioned Patrick Brown your ability to recapture diversion diverted volume, but also you know talking to you the F&B penetration.

Allison Pollinium: That market share growth in 'twenty.

Allison Pollinium: I'll start with a few comments about project Brown <unk> Brown.

Allison Pollinium: <unk> is a new way of going after business.

Allison Pollinium: And it has many elements to it and I'll make some of those real to you first of all we looked at ourselves and said, what's getting in the way of <unk>.

Allison M. Landry: Penetration your opportunity in the health care side, just any color in terms of where those levers can be pulled that market share growth in 'twenty.

Allison Pollinium: Because it was taking us too long to respond to our customer and we found that we hadn't really declared service level agreements amongst the various groups that participated in this.

Allison M. Landry: I'll start with a few comments about project Brown <unk> Brown.

Allison M. Landry: <unk> is a new way of going after business.

Allison M. Landry: And it has many elements to it.

Allison Pollinium: In this exercise is providing offers to our customers. So we've shortened up the time to response and Thats important and thats going to be with US now forever I can make that real for you outside of the United States that used to take 22 days, we dropped it to six days. We're now at two days, that's best in class and we made similar improvements in the United States.

Allison M. Landry: Make some of those real to you first of all we looked at ourselves and said, what's getting in the way of <unk>.

Allison M. Landry: It was taking us too long to respond to our customer and we found that we hadn't really declared service level agreements amongst the various groups that participated in this.

Allison Pollinium: Patrick Brown was also looking at general manager General manager as the new tool that we introduced that uses artificial intelligence and machine learning to score a deal and avoid the need for our salespeople to go after our pricing people for appeals. They can actually see this Florida deal we've had right.

Allison M. Landry: In this exercise is providing offers to our customers. So we've shortened up the time to response and Thats important and thats going to be with US now forever I can make that real for you outside of the United States that used to take 22 days, we dropped it to six days. We're now at two days, that's testing and we've made similar improvements in the United States.

Allison Pollinium: Acceptance and win rates are 79% win rates with this tool, but we found through project Brown, though we weren't offering all of our products ended tool and one of the products, we weren't offering less sure Poe switches are great product. So we introduced your post into the dealer manager and we're getting some good return on that particularly.

Allison M. Landry: Patrick Brown was also looking at general manager manager as the new tool that we introduced that uses artificial intelligence and machine learning to score.

Allison M. Landry: And.

Allison M. Landry: The need for our salespeople to go after our pricing people for appeal. They can actually see this for their deal that had great acceptance and win rates are 79% win rates with this tool, but we found through project Brandon that we weren't offering all of our products in the tool and one of the products, we weren't offering less sure Poe switches.

Allison Pollinium: Tractor for our small and medium sized customers. Another thing that we did is that we improved.

Allison Pollinium: Increased we can pick ups in several key markets during the year, So and I could go on and on and on but this is a way of operational excellence to drive the business and capture share so where are we going to capture share.

<unk> product. So we introduced your post into the dealer manager and we're getting some good return on that that's particularly attractive for our small and medium sized customers.

To continue to lean into the small and medium size.

Allison Pollinium: Opportunities were seeing some real success in that area.

The other thing that we did is that we improved.

Allison M. Landry: Increased weekend pickups in several key markets during the year, so and I could go on and on and on but this is a way of operational excellence to drive the business and capture share. So where are we then to capture share.

Allison Pollinium: We're going to continue to lean into healthcare.

Allison Pollinium: Started here the healthcare revenues around 6 billion now at 10 billion and we're going to.

Allison Pollinium: <unk> growth will lay out our three year growth plans for you at our March Investor Day, I think you'll be very pleased with that.

Allison M. Landry: To continue to lean into the small and medium size.

Allison M. Landry: Opportunities were seeing some real success in that area.

Allison Pollinium: China continued to sell off the service that we provide.

Allison M. Landry: We're going to continue to lean into healthcare.

Allison Pollinium: And the capabilities that we have that actually no one else has.

Allison M. Landry: Started here in the health care revenues around 6 billion now $10 billion and we're going to see.

Allison Pollinium: That's our integrated network.

Allison Pollinium: At our Investor day in March.

Allison M. Landry: You need to growth, we'll lay out our three year growth plans for you at our March Investor Day, Youll be very pleased with that.

Allison Pollinium: Market share capture but let me just make the market.

Allison Pollinium: That'd be helpful too as we think about the addressable market.

Allison Pollinium: Spot market in the United States.

Allison M. Landry: We're going to continue to sell off the service that we provide in the K.

Allison Pollinium: Little over.

Allison Pollinium: 50, 52 million packages a day, so there's plenty of addressable market for us to go get and plenty of market for us to get outside of the United States. Because we are underpenetrated in so many areas one reason I called out our new air hub.

Allison M. Landry: Abilities that we have that actually no one else has never integrated network.

Allison M. Landry: At our Investor day in March.

Market share capture but let me just make the market.

Allison M. Landry: That'd be helpful too as we think about the addressable market.

Spot market in the United States.

Allison Pollinium: International Airport is that greater China area.

Allison M. Landry: A little over.

Allison M. Landry: 50, 52 million packages a day, so there's plenty of addressable market for us to go get and.

Speaker Change: Isn't it.

Speaker Change: <unk> economic base, the 13th largest economy in the world, 37% of all China exports go through that airport and today, we have small.

Allison M. Landry: Plenty of market for us to get outside of the United States. Because we are underpenetrated in so many areas one reason I called out our new Arizona.

Speaker Change: Oh way over capacity.

Speaker Change: And buildings that are inefficient with lease rates that are sky high. So we are building <unk>.

Allison M. Landry: International Airport is that greater China area.

Allison M. Landry: Isn't it unbelievable economic power base, the 14th largest economy in the world, 37% of all China exports go through that airport.

Speaker Change: We're a meter facility it will make us the second largest air hub in that important part of the market.

Starting to see a lot of growth coming off of that.

Speaker Change: Thanks.

Speaker Change: Great. Thank you.

Allison M. Landry: We have small.

Our next question will come from the line of Tom <unk> of UBS. Please go ahead.

Allison M. Landry: Oh way overcapacity.

Allison M. Landry: And buildings that are inefficient with lease rates that are sky high. So we are building a 20000 square meter facility. It will make us the second largest air hub in that important part of the market.

Yes. Good morning, So I wanted to see if you could talk a little bit about the competitive dynamic in the market.

Tom: I know the backdrop is it did you had some share loss associated with the teamster contract, but it also seems like there might be risks that.

Allison M. Landry: Expect to see a lot of growth coming off of that over time.

Speaker Change: Great. Thank you.

Speaker Change: Our next question will come from the line of Tom Water-witch of UBS. Please go ahead.

Tom: Other competitors are gaining traction in the market. So if you look at postal service ad.

Tom Wadewitz: Yes. Good morning, So wanted to see if you could talk a little bit about the competitive dynamic in the market.

Tom: Up 7% volumes and they had a new product the ground advantage and so I guess the question is is there risk that.

Tom Wadewitz: I know the backdrop is it did you had some share loss associated with the teamster contract, but it also seems like there might be risks that.

Tom: Competitive set has got more challenging and how do we think about what you need to do.

Tom: Have a better volume outcome in 2024 is there you know.

Tom Wadewitz: Other competitors are gaining traction in the market. So if you look at postal service AD I think up 7% volumes and they add a new product the ground advantage and so I guess the question is is there a risk that.

Tom: Is there more pressure on price or is it a different formula too.

Tom: To get the better volume will come in 'twenty four.

Tom: So I would say that the pricing environment is very rational.

Tom Wadewitz: The.

Tom Wadewitz: Competitive set has got more challenging.

Tom: And you can see that as Bryan ticked out the RVP performance in the fourth quarter, we had very strong base rate performance now the RVP was muted because of lower fuel cost and product characteristics and a product mix change and lower demand surcharges, but the base was very strong and we expect that base to <unk>.

Tom Wadewitz: And how do we think about what you need to do.

Tom Wadewitz: To have a better volume outcome in 2024 is there.

Is there more pressure on price or is it a different formula to.

You know to get the better volume will come in 'twenty four.

Tom Wadewitz: But I would say that the pricing environment is very rational.

Tom: <unk> into 2020 for our GI right for 2024 is five 9%, while we keep all of it no, but we'll be keep.

Tom Wadewitz: And you can see that as Bryan ticked out the RVP performance in the fourth quarter, we had very strong base rate performance now the RVP was muted because of lower fuel costs.

Tom: Part of it yes, just like we did in 2023, and we kept about 60% of the <unk>.

Tom Wadewitz: Product characteristics, and a product mix change and lower demand surcharges, but the base was very strong and we expect that base to continue into 2020 four or for 2024 is five 9% well, we keep all of it no, but we will we keep a lot of it just like we did in 2023.

Tom: In 2023, so the pricing environment is rational in terms of competitive products. It's incumbent upon us to stay at the leading edge and meeting our customers where they want us to be that's one reason, we offered a hyper local product beginning last quarter.

Tom Wadewitz: We kept about 60% of the <unk> in 2023, so the pricing environment is rational in terms of competitive products coming out.

Tom: It's really a shortened zone product, we haven't had that before and as we look at the offerings that we will go to market with them. This.

Tom: This year, we've got.

Tom Wadewitz: It's on us to stay at the leading edge and meeting our customers, where they want us to be that's one reason we offered a hyper local product beginning last quarter, which is really a shortened zone product, we haven't had that before and as we look at the offerings that we will go to market with them.

Tom: Some things underway not ready for prime time.

Next looking over at our new Chief Commercial Officer, Matt Duffy.

Matt Duffy: Be able to talk about that at our March Investor Conference and he is nodding his head.

Speaker Change: Stay tuned for that.

Speaker Change: Okay.

Matt Duffy: Alright, thank you.

Tom Wadewitz: This year.

Matt Duffy: Our next question will come from the line of Jeff Kauffman of vertical Research partners. Please go ahead.

Tom Wadewitz: Got some things underway not ready for prime time.

Tom Wadewitz: Looking over at our new Chief Commercial Officer, Matt Duffy, and we might be able to talk about that at our March Investor Conference and he is nodding his head.

Jeff Kauffman: Thank you very much.

Jeff Kauffman: The big picture stuff too to March, but just kind of curious how did your global view change between when we were discussing the labor deal.

Matt Duffy: Jason for that.

Okay.

Jason: Alright, thank you.

Jason: Our next question will come from the line of Jeff Kauffman of vertical Research partners. Please go ahead.

Back in August September.

To the year and you mentioned the softness in Europe, you mentioned the shift from air to ground, but you know kind of what were the big changes in your outlook over that four or five months period.

Jeffrey Kaufman: Thank you very much.

Jeffrey Kaufman: The big picture stuff too to March, but just kind of curious how did your global view change between when we were discussing the labor deal.

Jeff Kauffman: Well, what really softened up is Europe.

Jeff Kauffman: If you look at our volume decline on both domestic and export it was heavily weighted in Europe.

Jeffrey Kaufman: Back in August September.

Jeffrey Kaufman: To the year and you mentioned the softness in Europe, you mentioned the shift from air to ground, but you know kind of what were the big changes in your outlook over that four or five months period.

Jeff Kauffman: In fact, the decline in our expert with 94% driven by the softness.

Jeff Kauffman: So you see what's happening and with industrial manufacturing there is just way off.

Speaker Change: Well, what really softened up Europe.

Jeff Kauffman: <unk> is a big change there also dynamics happening in air and Ocean freight as you've been watching we've all been watching the drama in the Red Sea. The fact that the water levels in the Panama Canal are low and that certainly is causing a lot of chaos actually in ocean and air freight interestingly on the air side both.

Speaker Change: If you look at our volume decline, both domestic and export it was heavily weighted in Europe.

Speaker Change: In fact, the decline in our export was 94% driven by the softness.

Speaker Change: So you see what's happening with industrial manufacturing there is just way off so that that is a big change there also dynamics happening in air and Ocean freight as you've been watching we've all been watching the drama in the Red Sea. The fact that the water levels in the Panama Canal are low and that certainly is helping a lot.

Jeff Kauffman: Both our rates and volumes were down on the ocean side volumes are up but as Brian called out the rates or consider of lay down as we sit here today, it's a very dynamic market and ever changing.

Jeff Kauffman: To predict candidly because what we're seeing today is for shippers who have high value.

That's actually an ocean and air freight interestingly on the air side, both both our rates and volumes were down on the ocean side volumes are up that as Brian called out the rates were consider of lay down as we sit here today, it's a very dynamic market and ever changing a little hard to predict candidly.

Actually they're worried about the ocean conditions, so theyre moving to the air So air rates are tightening a bit.

Jeff Kauffman: The ocean side, because shippers are starting to have to reroute away from the Red Sea or the Panama Canal. The routing is taking longer. So there is some change the dynamics of pricing there too. We just at this stage Super nimble here and Kate and her team are doing a great job at that what would you like to add here, Yeah, I would say that.

Speaker Change: Because what we're seeing.

Speaker Change: Is for shippers, who have high value.

They're actually they're worried about the ocean conditions, so theyre moving to the air So air rates are tightening of that and.

Kate: The market remains volatile and even in Europe with the drop off in the inflationary.

Speaker Change: And on the Ocean side, because shippers are starting to have to reroute away from the Red Sea or the Panama Canal. The routing is taking longer. So there is some change the dynamics of the pricing there too we just have to stay super nimble here and Kate and her team are doing a great job in that case, what would you like to add here, yeah, I would say that.

Kate: No softening, we were able to pull back on the cost to deliver a great margin and that's our commitment and then to ensure that in the forwarding side of the house as we've done stay just razor sharp to ensure that we are right on track with any trend that we see and I'm really proud of the team because we have got the initiative to gain those custom.

Kate: The market remains volatile and even in Europe with the drop off in the inflationary.

Kate: <unk> with high value goods and that international Air freight that's coming as a result.

Kate: <unk>, we were able to pull back on the cost to deliver a great margin and that's our commitment and then to ensure that in the forwarding side of the house as we've done stay just razor sharp to ensure that we are right on track with any trend that we see and I'm really proud of the team because we have got the initiative to gain those customers.

Speaker Change: And just if I could follow up on that answer.

So given the global events with Suez Canal, Panama Canal.

Speaker Change: Looking at the eliminate out of lemon side or is this a bigger opportunity for you in Europe or is this a bigger opportunity for air out of Asia.

Kate: With high value goods and that international Air freight that's coming as a result.

Speaker Change: It actually is the first showing up Asia to Europe Lane, and but I will say this is going to be the repositioning of vessels around the globe, that's going to be a global event. So we see it as an opportunity throughout and our sales resources, our global our portfolio is global so ups's very well positioned to take advantage of it.

Speaker Change: And just if I could follow up on that answer.

Speaker Change: So given the global events with Suez Canal, Panama Canal.

Speaker Change: Looking at the eliminated out 11 side of this is this a bigger opportunity for you in Europe or is this a bigger opportunity for air out of Asia.

Speaker Change: Okay. Thank you.

It actually is the first showing up Asia to Europe Lane, and but I will say this is going to be the repositioning of vessels around the globe, that's going to be a global event. So we see it as an opportunity throughout and our sales resources, our global our portfolio is global So U P. S is very well positioned to take advantage of it.

Speaker Change: Thanks, Jeff.

Our next question will come from the line of Brandon <unk>.

Brandon: <unk>. Please go ahead.

Brandon: Hey, good morning, and thanks for taking my question.

Brandon: Can you guys speak to your enterprise customers and the volume trends that you saw in the fourth quarter and expectations going into 2024, and maybe compare and contrast that with <unk> as well as your small medium business mix.

Speaker Change: Okay. Thank you.

Thanks, Jeff.

Speaker Change: Our next question will come from the line of Brandon <unk>.

Speaker Change: So happy to Brennan.

Barclays. Please go ahead.

Speaker Change: We were actually pleased with the volume momentum we were at a low water Mark in August of last year down, 15% and we saw sequential monthly improvement as we looked at our volume domestically from an Adv perspective down to mid single digit declines in the month of December so that trend continues to play out well, we're going to see.

Brandon: Hey, good morning, and thanks for taking my question.

Brandon: Can you guys speak to your enterprise customers and the volume trends that you saw in the fourth quarter and expectations going into 2024, and maybe compare and contrast that with b to b as well as your small medium business mix.

So happy to Brendan.

Speaker Change: Some tough comps, though in the first quarter. So I wouldn't expect positive volume growth in Q1, we start to see positive volume growth in Q2, and then certainly in the back half of the year as the comps change F&B Karl mentioned very focused on penetration on the SMB side and specifically some of the medium SMB customers.

Brendan: We were actually pleased with the volume momentum we were at a low watermark in August of last year down, 15% and we saw sequential monthly improvement as we looked at our volume it domestically from an Adv perspective down to mid single digit declines in the month of December so that trend continues to play out well, we're going to see.

Speaker Change: We've stated we would like to see that mix trend up to 30% plus we finished the year at 28, So we're well on our way in that direction, maybe another comment because this is just an interesting observation on the market. If I look at our top five decliners and in the quarter.

Brendan: Some tough comps, though in the first quarter. So I wouldn't expect positive volume growth in Q1, we start to see positive volume growth in Q2, and then certainly in the back half of the year as the comps change F&B Karl mentioned very focused on penetration on the SMB side and specifically some of the medium SMB customers.

Speaker Change: That would include our largest customer and there is an intentional decline there and then.

Brendan: We've stated we would like to see that mixed trend up to 30% plus we finished the year at 28, So we're well on our way in that direction, maybe another comment because this is just an interesting observation on the market. If I look at our top five decliners and in the quarter.

If I look at the remaining decliners, it's really interesting to see what's happening at those only one has diverted some volume there is there a dual sourcing and they have diverted some volume and I suspect the state dual sourcing.

Speaker Change: Rest either their business is just way off.

That would include our largest customer and theres, an intentional decline there and then if I look at the remaining decliners, it's really interesting to see what's happening.

Speaker Change: They have they have worked.

Uh huh.

Speaker Change: Create a better experience inside the store to encourage buy online pick up in store. So there isn't this dynamic happening within our large enterprise customers I think for all of US. We're delighted to have anniversaried. The demand that we saw through Covid now that that's behind us now.

Brendan: Of those only one has devoted some volume there is there a dual source there and they have to bring some volume and I suspect those state dual sourcing.

Brendan: Rest either their business is just way off.

Brendan: They have.

Brendan: It worked brilliantly.

Brendan: Uh huh.

The volume for the small package market has reverted back to the mean this is an opportunity now for everyone to grow.

Brendan: Create a better experience inside the store to encourage buy online pick up in store. So there is dynamic happening within our large enterprise customers I think for all of US. We're delighted to have anniversaried. The demand that we saw through Covid now that that's behind us now.

Speaker Change: Thank you both.

Brian.

Our next question will come from the line of Helane Becker of Cowen. Please go ahead.

Helane Becker: Got it thanks, very much everybody and thanks team for the time, so priority what when you did the acquisition.

Brendan: The volume for the small package market has reverted back to the mean this is an opportunity now for everyone to grow.

Helane Becker: What do you think the benefits would be.

Speaker Change: Thank you both.

That made it important to do the acquisition and then what really would actually happened.

Speaker Change: Brian.

Speaker Change: Our next question will come from the line of Helane Becker of Cowen. Please go ahead.

Helane Becker: That.

Speaker Change: He is causing you to rethink.

Helane Becker: Got it thanks, very much everybody and thanks team for the time, so clarity what when you did the acquisition.

Speaker Change: How coyote fits in the network and my follow up question is unrelated.

You recently bought two seven for seven eight freighters I saw and I'm just wondering a few buses off lease or where they came from since Boeing doesn't make the 747 anymore. Thank you.

Helane Becker: What do you think the benefits would be.

Helane Becker: That made it important to do the acquisition and then what really would actually happened.

Helane Becker: That.

Speaker Change: Is causing you to rethink.

I'm happy to address that Coyote questions to the best of my ability I wasn't on the board in 2015, when we bought the company, but the strategic rationale.

How coyote fits in the network and my follow up question is unrelated you recently bought $2 747, eight freighters I saw and I'm just wondering a few buses off lease or where they came from since Boeing doesn't make this 747 anymore. Thank you.

Speaker Change: It was really about expanding the portfolio.

Speaker Change: It was a very thorough.

Speaker Change: Full strategic rationale to expand the portfolio, but I don't think we fully understood at the time was just how cyclical this business is and I'll make it real for you when we acquired Coyote in 2015, the revenues in the previous year for Coyote with $2 1 billion.

Speaker Change: I'm happy to address that Coyote question to the best of my ability.

Speaker Change: Was on the board in 2015, when we bought the company, but the strategic rationale.

Speaker Change: It was really about expanding the portfolio and it was.

Speaker Change: During Covid clarity peaked up to over $4 billion in revenue well, it's come way down since then in fact, if you look at our supply chain solutions business. It was down $3 billion year on year, which is a third of the overall company decline within that $3 billion Coyote made up 38% of the decline.

Speaker Change: <unk> thought.

Speaker Change: Thoughtful strategic rationale to expand the portfolio.

I don't think we fully understood at that time was just how cyclical this business is and I'll make it real for you when we acquired Coyote in 2015, the revenues in the previous year for Coyote with $2 1 billion.

Speaker Change: For the year at 48% of the decline for the fourth quarter. So you can see the volatility in the revenue line and then we've got a business that has a very low.

Speaker Change: During Covid clarity peaked up to over $4 billion in revenue well, it's come way down since then in fact, if you look at our supply chain solutions business. It was down $3 billion year on year, which is a third of the overall company decline within that $3 billion Coyote made up 38% of the decline.

Speaker Change: So if you've got that kind of volatility on the revenue line, you're going to have even more volatility on there on the on the earnings line. So we're like gosh is there another way to skin. This cat can we think about an alternative that continues to allow us to provide the service, but without all the overhead or perhaps the business.

Speaker Change: For the year and 48% of the decline for the fourth quarter. So you can see the volatility in the revenue line and then we've got a business that has a very long.

Where else than it is to US we don't know we don't know the outcome of our alternative work, but as soon as we do we'll share that with you and on the trader question. So the two two planes were picked up through Qatar and really as part of a broader airline strategy to retire some of the MD elevens in terms of efficiency and sustainability.

So if you've got that kind of volatility on the revenue line, you're going to have even more volatility on there on the on the earnings line. So we're like gosh is there another way to skin. This cat can we think about an alternative that continues to allow us to provide the service, but without all the overhead or perhaps.

Speaker Change: Got it thank you.

Speaker Change: Someone else than it is to US we don't know we don't know the outcome of our alternative work, but as soon as we do we will share that with you.

Speaker Change: Thank you.

Speaker Change: Our next question will come from the line of Scott Group of Wolfe Research. Please go ahead.

Speaker Change: The trader question. So the two two planes were picked up through Qatar.

Scott Group: Hey, Thanks. Good morning, just wanted to follow up a couple of things on the guidance, Brian I know you said, 10% U S margin exiting the year any color on the shape of the year. You also talked a couple of times about just Q1 being hard at any more specific color on Q1, and then just lastly.

Speaker Change: And really it's part of a broader airline strategy to retire some of the MD elevens in terms of efficiency and sustainability.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Speaker Change: Our next question will come from the line of Scott Group of Wolfe Research. Please go ahead.

I know every year on this call you typically give it an update on on the biggest.

Scott H. Group: Hey, Thanks, Good morning, just.

Scott H. Group: Wanted to follow up a couple of things on the guidance, Brian I know, you said, 10% U S margin exiting the year any color on the shape of the year. You also talked a couple of times about Q1 being hard any more specific color on Q1, and then just lastly, I know every year on this call you typically give it an update on.

Scott Group: Biggest customer exposure, if you can give us an update there. Thank you happy.

Speaker Change: I'm happy to Scott so.

From a domestic margin perspective.

Brian: We're looking at the back half of the year.

Speaker Change: <unk> in the range of.

Speaker Change: Hum.

Speaker Change: From an op profit perspective, we're looking at 20% to 30% growth Scott from a margin from.

Scott H. Group: On the biggest.

Scott H. Group: Biggest customer exposure, if you can give us an update there. Thank you happy.

From a margin.

Brian: I'm happy to Scott so.

Speaker Change: We will be in the.

Brian: From a domestic margin perspective.

Speaker Change: Tend to 10 plus range for the fourth quarter. The challenge. We have is the first quarter, we actually expect to be down.

Brian: We're looking at the back half of the year.

Speaker Change: <unk> in the range of.

Speaker Change: In the neighborhood.

Speaker Change: Low mortar Mark in Q3 of last year, So we're not going to be down to that point, but I don't think it will be much better from a margin perspective in the U S.

From an op profit perspective, we're looking at 20% to 30% growth Scott from a margin from.

Speaker Change: The first quarter of this year from a.

Speaker Change: From a margin.

Speaker Change: We will be in the.

Speaker Change: Amazon perspective, we finished the year at 11, 8% and that was not due to an increase in the business. We are still executing our plan with them in terms of a glide down it was more to the overall enterprise revenue coming down.

Speaker Change: Tend to 10 plus range for the fourth quarter. The challenge. We have is the first quarter, we actually expect to be down.

Speaker Change: In the neighborhood.

Low mortar Mark in Q3 of last year, So we're not going to be down to that point, but I don't think it will be much better from a margin perspective in the U S and the.

Speaker Change: As a part of the <unk>.

Speaker Change: It just came down faster than Amazon.

Speaker Change: The first quarter of this year from a.

Speaker Change: Stephen we have time for one more question.

Amazon perspective, we finished the year at 11, 8% and that was not due to an increase in the business. We're still executing our plan with them in terms of a glide down it was more to the overall enterprise revenue coming down.

Speaker Change: Our final question will come from the line of Jordan Alegar with Goldman Sachs. Please go ahead Sir.

Jordan Alegar: Yes, hi, good morning.

Jordan Alegar: So that was sort of thinking about the small package growth that you guys targeted at less than 1% this year.

Speaker Change: As a part of the enterprise it just came down faster than Amazon.

Jordan Alegar: Pretty conservative after a couple of years of you know probably negative industry growth as well, so I'm just sort of curious.

Speaker Change: Even we have time for one more question.

Our final question will come from the line of Jordan Alegar of Goldman Sachs. Please go ahead Sir.

Now what's informing that is that your economic outlook your forecast and then.

Yeah, Hi, good morning.

Jordan Alegar: Maybe this is.

Jordan Alegar: So I'm sort of thinking about the small package growth that you guys targeted at less than 1% this year.

Your analyst day, Youll address it but sort of on a normalized.

So what kind of small package domestic growth underlying industry growth.

Jordan Alegar: Pretty conservative after a couple of years of you know probably.

Jordan Alegar: When you think about over a longer term basis.

Jordan Alegar: <unk> industry growth as well, so I'm just sort of curious.

Jordan Alegar: That's the longer term view its very good it's 3%.

Jordan Alegar: Yeah, what's informing that is that your economic outlook your forecast and then.

Really good growth actually and we're looking forward to getting into that growth mode. We use a number of external factors to inform our perspective on the market growth, we triangulate from a number of different sources and come up with our best view. This is our best view.

Jordan Alegar: And maybe this is your at your analyst day, Youll address it but sort of on a normalized.

So what kind of small package domestic growth underlying industry growth.

Jordan Alegar: Do you think about over a longer term basis.

Jordan Alegar: That's the longer term view its very good it's 3%.

Okay. Thanks.

Speaker Change: Thanks Jordan.

Jordan Alegar: Really good growth actually and we're looking forward to getting into that growth mode. We use a number of external factors to inform our current perspective on the market growth, we triangulate from a number of different sources and come up with our best view. This is our best view.

I will now turn the floor back over to our host Mr. P. J <unk>. Please go ahead Sir.

P. J: Thank you Steven This concludes our call. Thank you for joining and have a good day.

Speaker Change: Okay. Thanks.

Speaker Change: Thanks Jordan.

Speaker Change: I will now turn the floor back over to our host Mr. P. J <unk>. Please go ahead Sir.

Steven This concludes our call. Thank you for joining and have a good day.

Yes.

Speaker Change: Yeah.

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