Q1 2025 United Parcel Service Inc Earnings Call

Okay.

Matthew: My name is Matthew, and I'll be your facilitator today.

Matthew: Good morning, My name is Matthew and I will be your facilitator today I'd like to welcome everyone to the UBS first quarter 2025 earnings conference call.

Matthew: I'd like to welcome everyone to the UPS First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise and after the speaker's remarks there will be a question and answer period. Any analysts that want to ask a question, now is the time to press star then 1 on your telephone keypad.

Matthew: All lines have been placed on mute to prevent any background noise and the speaker's remarks. After the Speakers' remarks, there'll be a question and answer period any analysts I want to ask a question now was the time to press Star then one on your telephone keypad.

PJ Guido: It is now my pleasure to turn the floor over to your host, Mr. PJ Guido, Investor Relations Officer. Sir, the floor is yours.

P. J: It is now my pleasure to turn the floor over to your host Mr. P. J <unk> Investor Relations officer, Sir the floor is yours.

PJ Guido: Good morning and welcome to the UPS first quarter 2025 earnings call. Joining me today are Carol Tomei, our CEO, Brian Dykes, our CFO, and a few additional members of our executive leadership team. Before we begin, I want to remind you that some of the comments we'll make today are forward-looking statements and address our expectations for the future performance or operating results of our company.

P. J.: Good morning, and welcome to the UBS first quarter 2025 earnings call.

Speaker Change: Joining me today are Carol <unk>, our CEO, Brian <unk>, our CFO and a few additional members of our executive leadership team.

Speaker Change: We begin I want to remind you that some of the comments, we'll make today are forward looking statements and address our expectations for the future performance or operating results of our company.

PJ Guido: These statements are subject to risks and uncertainties, which are described in our 2024 Form 10-K and other reports we file with or furnish to the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC.

Speaker Change: These statements are subject to risks and uncertainties, which are described in our 2024 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.

PJ Guido: Unless stated otherwise, our discussion refers to adjusted results. For the first quarter of 2025, GAF results included a net charge of $83 million, or $0.09 per diluted share, comprised of after-tax transformation strategy costs of $44 million, and a non-cash after-tax impairment charge of $49 million, primarily related to asset and investment impairment. These charges were partially offset by a $10 million benefit for the partial reversal of an income tax valuation allowance.

Speaker Change: Unless stated otherwise are discussion refers to adjusted results.

Speaker Change: For the first quarter of 2025 GAAP results include a net charge of $83 million or nine cents per diluted share comprised of after tax transformation strategy cost of $44 million.

And a noncash after tax impairment charge of $49 million, primarily related to asset and investment impairment.

Speaker Change: These charges were partially offset by a $10 million benefit the partial reversal of an.

Speaker Change: Income tax valuation allowance our.

PJ Guido: A reconciliation of non-GAAP adjusted amounts to GAAP financial results is available in today's webcast material. These materials are also available on the UPS Investor Relations website.

Speaker Change: A reconciliation of non-GAAP adjusted amounts to GAAP financial results is available in todays webcast materials.

Speaker Change: These materials are also available on the UBS Investor Relations website.

PJ Guido: Following our prepared remarks, we will take questions from those joining us via the telecom. If you wish to ask a question, press star and then 1 on your phone to enter the queue. Please ask only one question so that we may allow as many as possible to participate. You may rejoin the queue for the opportunity to ask an additional question.

Speaker Change: During our prepared remarks, we will take questions from those joining us via the teleconference. If you.

Speaker Change: Wish to ask a question press Star and then one on your phone to enter the queue. Please.

Speaker Change: Please ask only one question so that we may allow as many as possible to participate you.

Speaker Change: You may rejoin the queue for the opportunity to ask an additional question.

Carol Tomei: And now I'll turn the call over to Carol. Thank you, PJ, and good morning. In the face of a very dynamic environment, I'm pleased with our first quarter performance. To begin, I want to thank all UPSers for delivering outstanding service to our customers. I also want to recognize the excellent progress our teams have made in executing the strategies we announced on our last earnings call. There is a lot going on at UPS and in the world.

Carol Thank: And now I'll turn the call over to Carol Thank.

Carol Thank: Thank you P J and good morning.

Carol Thank: The phase of a very dynamic environment I'm pleased with our first quarter performance.

Carol Thank: To begin I want to thank all <unk> for delivering outstanding service to our customers.

Carol Thank: I also want to recognize the excellent progress our teams have made in executing this strategy as we announced on our last earnings call.

Carol Thank: There's a lot going on at UBS and in the World.

Carol Tomei: So let's move to our results. In the first quarter, our consolidated revenue was $21.5 billion, a decrease of 0.7% versus last year, and in line with our expectations. Consolidated operating profit was $1.8 billion, an increase of 0.9% compared to last year. Consolidated operating margin was 8.2%, up 20 basis points versus last year, and diluted earnings per share were $1.49, up 4.2% from last year. Consolidated Operating Profit, Operating Margin, and Diluted Earnings Per Share were slightly ahead of our expectations. Of note, our U.S. domestic segment increased operating profit by $164 million year-over-year and expanded operating margins by 110 basis points.

Carol Thank: Move to our results.

Carol Thank: In the first quarter, our consolidated revenue was $21 $5 billion, a decrease of <unk>, 7% versus last year and in line with our expectation.

Carol Thank: Consolidated operating profit was $1 $8 billion, an increase of 9% compared to last year.

Carol Thank: Consolidated operating margin was eight 2% up 20 basis points versus last year and diluted earnings per share were $1 49.

Carol Thank: Up four 2% from last year.

Carol Thank: Consolidated operating profit operating margin and diluted earnings per share were slightly ahead of our expectations.

Carol Thank: Of note our U S. Domestic segment increased operating profit by $164 million year over year and expanded operating margin by 110 basis points.

Carol Tomei: While our revenue and volume in the first quarter was in line with our expectations, results by month were not. Starting with the U.S., while we expected negative ADV growth given our Amazon Glydown plan... January's ADV decline was less than expected, marked by positive average daily volume or ADV growth in certain B2B, SMB, and healthcare customers. Then, as we moved into February and March, uncertainty surrounding global trade policies and other matters led to a drop in consumer competence and muted demand from some enterprise and SMB customers. As a result, the decline in U.S. ADP for the months of February and March was higher than we expected.

Carol Thank: While our revenue and volume in the first quarter was in line with our expectation.

Carol Thank: Results by month, we're not.

Carol Thank: Starting with the U S. While we expected negative ADB growth given our Amazon glide down plan.

Carol Thank: January is AVP decline was less than expected marked by positive average daily volume or Adv growth in certain beta be F&B and health care customers.

Carol Thank: Then as we moved into February and March uncertainties surrounding global trade policies and other matters led to a drop in consumer confidence and muted demand from some enterprise and SMB customer.

Carol Thank: As a result, the decline in U S. Adv for the months of February and March with higher than we expected.

Carol Tomei: Looking outside the U.S., demand for U.S. inbound services surge as customers pull forward inventory purchases ahead of expected tariff changes. In response, we leveraged the flexibility of our global portfolio with the power of our next-gen brokerage technology, which helped our customers avoid border disruptions and kept their supply chains moving. As a result, in the international segment, our U.S. outbound volume increased 9.5% in the first quarter.

Carol Thank: Looking outside the U S demand for U S. Inbound services served as customers pull forward inventory purchases ahead of expected tariff changes.

Carol Thank: In response, we leveraged the flexibility of our global portfolio with a power of our Nextgen brokerage technology, which helped our customers avoid border disruption and kept their supply chains moving.

Carol Thank: As a result in the international segment, our U S. Outbound volume increased nine 5% in the first quarter.

Carol Tomei: In January, we announced three strategic actions to drive our business to a more profitable, agile, and differentiated UPS. Let me provide a high-level update on our progress. Let's start with our plan to accelerate the glide down of Amazon's volume. You'll recall that we reached agreement with Amazon to reduce their volume in our network by more than 50% by June of 2026. Note that the volume we are transitioning out is Amazon's Fulfillment Center outbound volume. This volume is not profitable for us, nor a healthy fit for our network. The Amazon volume we plan to keep is profitable, and it is healthy volume, in other words, volume where we can add value, like returns and seller fulfilled outbound volume.

Carol Thank: In January we announced three strategic actions to drive our business to a more profitable agile and differentiated U P F.

Carol Thank: Let me provide a high level update on our progress.

Carol Thank: Let's start with our plan to accelerate the glide down of Amazon's volume.

Carol Thank: Youll recall that we reached agreement with Amazon to reduce their volume in our network by more than 50% by June of 2026.

Speaker Change: No. That's a volume we are transitioning out is Amazon fulfillment center outbound volume.

Speaker Change: This volume is not profitable for us nor a healthy fit for our network.

Speaker Change: The Amazon volume, we plan to keep us profitable and it is healthy volume in other words volume, where we can add value like return and seller fulfilled outbound volume.

Carol Tomei: In the first quarter, Amazon's ADB decline ran slightly ahead of plan, but is expected to be on plan by the end of the first half of this year. The Amazon GlideDown plans have been integrated into our Network of the Future initiative. We are executing the largest network reconfiguration in our history. We will optimize the capacity of our network with expected volume levels, as well as increase productivity through additional automation. With this reconfiguration, we will also lessen our dependency on labor, reduce the capital requirements needed to run the network, and will drive structural operating margins and return on invested capital improvement.

Speaker Change: In the first quarter Amazon to ADB decline ran slightly ahead of plan, but is expected to be on plan by the end of the first half of this year.

Speaker Change: The Amazon glide down plans have been integrated into our network of the future initiative.

Speaker Change: We are executing the largest network reconfiguration in our history.

Speaker Change: We will optimize the capacity of our network with expected volume levels as well as increased productivity through additional automation.

Speaker Change: With this reconfiguration, we will also lessen our dependency on labor reduce the capital requirements needed to run the network and will drive structural operating margin and return on invested capital improvement.

Carol Tomei: While this may be the largest network reconfiguration in our history, we've got experience that gives us confidence that we will be able to complete our plans with very little customer disruption and at the right cost to serve. Over the last couple of years, we've demonstrated our ability to manage hours and labor in line with changes in volume, all while staying within the confines of our labor agreement. In 2024, we successfully closed 11 buildings. And the learnings from those closings became the blueprint for our network reconfiguration approach. We are moving very quickly. In this first phase, we will complete 164 operational closures, including 73 building closures by the end of June.

Speaker Change: Well this may be the largest network reconfiguration in our history. We've got experience that gives us confidence that we will be able to complete our plans with very little customer disruption and at the right cost to serve.

Speaker Change: Over the last couple of years, we have demonstrated our ability to manage hours and labor in line with changes in volume all while staying within the confines of our labor agreement.

Speaker Change: In 2024, we successfully closed 11 building.

Speaker Change: And the learnings from those closings became the blueprint for our network reconfiguration approach.

Speaker Change: We are moving very quickly.

Speaker Change: In this first phase, we will complete 164 operational closures, including 73 building closures by the end of June.

Carol Tomei: And there's more to come. While our building footprint is changing, our pickup and delivery footprint is not. We remain committed to providing industry-leading reliability to all customers across the country. We'll just do it with fewer buildings. For our larger customers, we are working with them to update their operating plan. And for our SMBs, in the areas where we're closing buildings, UPS will still be accessible and convenient for customer drop-offs and pick-ups due to our network of 5,300 UPS stores and 29,000 drop boxes and UPS access points. 90% of the U.S. population lives within 5 miles of these locations.

Speaker Change: And theres more to come.

Speaker Change: While our building footprint is changing our pickup and delivery footprint is not.

Speaker Change: We remain committed to providing industry, leading reliability to all customers across the country.

Speaker Change: We'll just do it with fewer buildings.

Speaker Change: For our larger customers, we are working with them to update their operating plan.

Speaker Change: And for our F&B and the areas, where we're closing buildings UBS will still be accessible and convenient per customer drop off and pickup due.

Speaker Change: Due to our network of 5300, <unk> stores, and 29000 drop boxes and UBS access point.

Speaker Change: 90% of the U S population lives within five miles of these locations.

Carol Tomei: and about two-thirds of them are open on Sundays for added convenience. In a moment, Brian will provide more details on our cost out and network reconfiguration progress.

Speaker Change: And about two thirds of them are open on Sunday for added convenience.

Speaker Change: In a moment, Brian will provide more details on our cost out and network reconfiguration progress.

Carol Tomei: Our second strategic action was the insourcing of Sherpost's final mile delivery. We smoothly absorbed that volume into our network and adjusted the operating plans to address the additional stops associated with the final mile.

Speaker Change: Our second strategic action was the in sourcing of share post final mile delivery.

Speaker Change: We smoothly absorbed that volume into our network and adjusted operating plans to address the additional stops associated with the final mile.

Carol Tomei: Earlier this month, we replaced the Surepost product with Ground Saver. This is a new and differentiated domestic economy service that balances speed and reliability for our customers, while allowing significant operational flexibility for UPS.

Speaker Change: Earlier this month, we replace the share post product with ground Sabre.

Speaker Change: This is a new and differentiated domestic economy service.

Speaker Change: Balances speed and reliability for our customers.

Speaker Change: Allowing significant operational flexibility for UBS.

Carol Tomei: The third strategic action we announced was our Efficiency Reimagined Initiative, which is designed to deliver $1 billion in savings by improving many of the ways we do business, including the elimination of manual tasks and enhancing our purchasing processes. We've made good progress here, and as planned, we expect to accelerate the benefits beginning in the second quarter.

Speaker Change: The third strategic action, we announced with our efficiency re imagined initiative, which is designed to deliver $1 billion in savings by improving many of the ways, we do business, including the elimination of manual tasks and enhancing our purchasing processes.

Speaker Change: Made good progress here and as planned we expect to accelerate the benefits beginning in the second quarter.

Carol Tomei: Moving to our strategic growth updates, we are focused on improving revenue quality and growing in the best parts of the market like healthcare, international, B2B, and S&P.

Speaker Change: Moving to our strategic growth updates, we are focused to unimproved revenue quality and growing in the best parts of the market like healthcare International <unk> and F&B.

Carol Tomei: Last week, we entered into an agreement to acquire Ann Lauer Healthcare Group, a move that will bolster our healthcare capabilities in Canada by adding 39 dedicated healthcare facilities across the country, along with cold chain packaging and specialized transportation solutions. The acquisition of Ann Lauer supports our goal of becoming the number one complex healthcare logistics provider in the world.

Speaker Change: Last week, we entered into an agreement to acquire and lower health care group.

Speaker Change: Move that will bolster our health care capabilities in Canada by adding 39 dedicated health care facilities across the country, along with cold chain packaging and specialized transportation solution.

Speaker Change: The acquisition of an lower supports our goal of becoming the number one complex health care logistics provider in the world.

Carol Tomei: We expect this acquisition to close in the second half of 2025.

Speaker Change: We expect this acquisition to close in the second half of 2025.

Carol Tomei: Touching on SMBs, in the first quarter, SMBs, including platforms, made up 31.2% of our total U.S. volume.

Speaker Change: Touching on Smbs in the first quarter Smbs, including platforms made up 31, 2% of our total U S volume and.

Carol Tomei: And looking at DAP, our digital access program, in the first quarter, global DAP revenue grew by 24% year over year. Finally, during the quarter, we reintroduced UPS ground with freight pricing, which provides exceptional value for shipments weighing more than 150 pounds. This positions us to be the only small package carrier that offers parcel-like pricing for less than truckload shipment. which is a true differentiator.

And looking at GAAP, our digital access program in the first quarter Global DAP revenue grew by 24% year over year.

Speaker Change: Finally during the quarter, we reintroduced to UBS ground with freight pricing, which provide exceptional value per shipments weighing more than 150 pounds.

Speaker Change: This positions us to be the only small package carrier that offers parcel like pricing for less than truckload shipment.

Speaker Change: Which is a true differentiator.

Carol Tomei: Let's turn to a discussion about tariffs and our approach to managing through what is turning out to be a very complex and ever-changing topic. From an exposure perspective, our U.S. import volume is roughly 400,000 pieces per day, which from a volume perspective is less than 2% of our total global ADV. From a revenue perspective, last year revenue on our China to U.S. trade lanes represented 11% of our total international revenue. and revenue from other trade lanes to the U.S. represented roughly 17% of our total international revenue. Our China to U.S. trade lines are our most profitable trade lines.

Speaker Change: Let's turn to a discussion about tariffs and our approach to managing through what is turning now to be a very complex and ever changing topic.

Speaker Change: From an exposure perspective, our U S. Import volume was roughly 400000 pieces per day, which from a volume perspective is less than 2% of our total global 80 day.

Speaker Change: From a revenue perspective last year revenue on our China U S trade lanes represented 11% of our total international revenue.

Speaker Change: And revenue from other trade lanes to the U S represented roughly 17% of our total international revenue.

Speaker Change: <unk>, China to U S trade lanes are our most profitable trade lanes.

Carol Tomei: In the US, we've talked with our top 100 customers to understand how their business is being impacted, both directly and indirectly by changes in trade policy. These customers have told us that they are exploring various options to address the tariff, from absorbing the cost, to pushing them into retail prices, to asking suppliers to help defray the expense. At this point, it remains an open question as to what path they will choose and what the potential impact could be on consumer demand and our business.

Speaker Change: In the U S. We've talked with our top 100 customers to understand how their business is being impacted both directly and indirectly by changes in trade policy.

Speaker Change: These customers have told us that they are exploring various options to address the tariffs from absorbing the cost to pushing them into retail prices to asking suppliers to help defer anything expense.

Speaker Change: At this point it remains an open question as to what path, they will choose and what the potential impact could be on consumer demand.

Speaker Change: And our business.

Carol Tomei: For the rest of the world, through the middle of April, we have interviewed nearly 45,000 international and freight forwarding customers to ascertain their shipping plans. For small package shippers, over 95% of those customers have told us that they expect to maintain their current business model, while the rest are considering several options, including trade shifts, transportation mode shifts, or exiting the business. Most of these customers are also telling us that they are letting inventory levels sell off, which will lead to lower shipping activity, at least for now. Freight forwarding customers are telling us that where they can, they are looking to move from air freight to ocean freight.

Speaker Change: For the rest of the world through the Middle of April we had interviewed nearly 45000 international in freight forwarding customers to ascertain their shipping plans.

Speaker Change: For small package shippers over 95% of those customers have told us that they expect to maintain their current business model.

Speaker Change: The rest are considering several options, including trade shifts transportation mode shifts are exiting the business.

Speaker Change: Most of these customers are also telling us that they are letting inventory levels sell off which will lead to lower shipping activity at least for now.

Speaker Change: Freight forwarding customers are telling us where they can they're looking to move from air freight to ocean freight.

Carol Tomei: From an internal exposure perspective, we've looked at our purchasing and capital plans to estimate any potential tariff-related cost increases that may come our way. Roughly $2.7 billion of our annual direct purchases are sourced outside of the U.S., with little exposure to China.

Speaker Change: From an internal exposure perspective, we've looked at our purchasing and capital plans to estimate any potential tariff related cost increases that may come our way.

Speaker Change: Roughly $2 7 billion of our annual direct purchases are sourced outside of the U S with little exposure to China.

Carol Tomei: From a service perspective, we are focused on making it easier for our customers to do business. Our next-gen brokerage capabilities make it easier for our customers to reclassify goods under harmonized tariff schedule codes and clear customs easily. Our new global checkout product makes it known what customers will pay for duties, taxes, and fees. Using artificial intelligence, global checkout enables our customers to display to their customers a guaranteed landed cost, covering all duties, taxes, and fees during online checkout. This eliminates surprise import fees at delivery and provides a much better customer experience. Global Checkout is available in 43 origin countries, and UPS is the only global carrier that offers a guaranteed landed cost that's integrated into shipping and billing technology.

Speaker Change: From a service perspective, we are focused on making it easier for our customers to do business.

Speaker Change: Our nextgen brokerage capabilities make it easier for our customers to reclassify goods under harmonized tariff schedule codes and clear customs easily are.

Speaker Change: Our new global checkout product makes it known what customers will pay for duties taxes and fees using.

Speaker Change: Using artificial intelligence mobile checkout enables our customers to display to their customers a guaranteed landed cost covering all duties taxes and fees during online checkout. This eliminates surprise airport fees that delivery and provides a much better customer experience.

Speaker Change: Global Checkout is available in 43 origin countries and UBS as the only global carrier that offers eight guaranteed landed cost that's integrated into shipping and billing technology.

Carol Tomei: Finally, for customers who need it, UPS provides bonded warehousing and foreign trade zone enabled solutions.

Speaker Change: Finally for customers, who need at UBS provides bonded warehousing and foreign trade zone enabled solutions.

Carol Tomei: Moving to our outlook. Given the uncertainty in the market, there is a wide range of possible outcomes. We continue to model different scenarios. But these are just scenarios.

Speaker Change: Moving to our outlook given the uncertainty in the market. There is a wide range of possible outcomes. We continue to model different scenarios, but these are just scenarios the world Hasnt been faced with such enormous potential impacts to trade in more than 100 years.

Carol Tomei: The world hasn't been faced with such enormous potential impacts to trade in more than 100 years. So the only thing we're certain of is we don't know which, if any, of our scenarios will play out. But by modeling different scenarios, we'll be able to adjust to rapid shifts in the business. Regarding our expectations for the full year, should market and economic conditions stabilize to be more in line with the assumptions we use to build our 2025 plan, we would be confident in the full year outlook we provided in January.

Speaker Change: So the only thing we're certain of is we don't know, which if any of our scenarios will play out.

Speaker Change: But by modeling different scenarios, we will be able to adjust to rapid shift in the business.

Speaker Change: Regarding our expectations for the full year should market and economic conditions stabilize to be more in line with the assumptions we used to build our 2025 plan, we would be confidence in the full year outlook. We provided in January.

Carol Tomei: Given today's level of uncertainty, however, we are not providing any updates to our consolidated full-year outlook at this time. We think instead it's prudent to focus on what we can control and continue to execute against our strategic and financial goals.

Speaker Change: Given today's level of uncertainty. However, we are not providing any updates to our consolidated full year outlook at this time.

Speaker Change: We think instead it is prudent to focus on what we can control and continue to execute against our strategic and financial goals.

Carol Tomei: Today, we are providing second quarter guidance based on April results and our expectations for the balance of the quarter. Once we are through the second quarter, we will hopefully have more clarity about tariffs and trade and the implications for demand dynamics, and we'll provide an update at that point.

Speaker Change: Today, we are providing second quarter guidance based on April results and our expectations for the balance of the quarter.

Speaker Change: Once we are through the second quarter, we will hopefully have more clarity about tariffs and trade and the implications for demand dynamics and will provide an update at that point.

Carol Tomei: In the face of uncertainty, there are some no's. We are confident in our position as a trusted leader in global logistics. And with the agility of our integrated network, our broad reach, our portfolio of services, and our proven trade expertise, we are well positioned to enable our customers to navigate a changing trade environment. Further, the strategic actions we launched in January to reconfigure our network and reduce costs across the business do not be timelier. The environment may be uncertain, but with our actions, we will emerge as an even stronger, more nimble UPS.

Speaker Change: In the face of uncertainty there are some known.

Speaker Change: We are confident in our position as a trusted leader in global logistics.

Speaker Change: And with the agility of our integrated network, our broad reach our portfolio of services and our proven trade expertise we.

Speaker Change: We are well positioned to enable our customers to navigate a changing trade environment.

Speaker Change: Further the strategic actions, we launched in January to reconfigure, our network and reduce costs across the business to not be timelier.

Speaker Change: The environment may be uncertain, but with our actions, we will emerge as an even stronger more nimble UBS.

Carol Tomei: With that, thank you for listening.

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

Brian Dykes: And now I'll turn the call over to Bri. Thank you, Carol, and good morning, everyone. This morning I'll cover three areas. Starting with our first quarter results, including cash and share on a return. Then I'll provide more detail on our cost out and network reconfiguration progress as we reduce the volume we deliver for Amazon.

Brian: Thank you Carol and good morning, everyone.

Brian: This morning, I'll cover three areas.

Brian: Starting with our first quarter results, including cash and Shareowner returns.

Brian: Then I will provide more detail on our cost out of network reconfiguration progress as we reduce the volume we deliver for Amazon.

Brian Dykes: Lastly, I'll touch on tariffs and trade policy changes and comment on our outlook for 2025. Starting with our consolidated performance, in the first quarter we generated $21.5 billion in revenue, a decline of 0.7% compared to the first quarter of last year. Consolidated operating profit was $1.8 billion, an increase of 0.9% versus the first quarter of 2024. and Consolidated Operating Margin was 8.2%, an increase of 20 basis points compared to the first quarter of last year. Diluted earnings per share was $1.49, up 4.2% from the first quarter of 2024.

Lastly, I'll touch on tariffs and trade policy changes and comment on our outlook for 2025.

Brian: Starting with our consolidated performance in the first quarter, we generated $21 5 billion in revenue a decline of <unk>, 7% compared to the first quarter of last year.

Brian: Consolidated operating profit was $1 8 billion.

Brian: An increase of <unk>, 9% versus the first quarter of 2024.

Brian: And consolidated operating margin was eight 2% an increase of 20 basis points compared to the first quarter of last year.

Brian: Diluted earnings per share was $1 49 up four 2% from the first quarter of 2024.

Brian Dykes: Now moving to our segment performance. As Carol mentioned, while volume and revenue performance in the quarter were in line with our expectations, our monthly performance was not. and U.S. Domestic. Following a strong January relative to our expectations, uncertainty in the market began impacting consumer behavior. Demand shifted down in February, falling further than our expectations and normal shipping patterns, and remained at that level in March. For the quarter, total U.S. ADV was down 3.5%, ground average daily volume decreased 2.5% year-over-year, and total air average daily volume was down 9.6%. Excluding the volume decline from Amazon, total ARADV grew 6.2%, driven by demand from healthcare and high-tech customers.

Brian: Now moving to our segment performance.

Brian: As Carol mentioned, while volume and revenue performance in the quarter were in line with our expectations. Our monthly performance was not.

Brian: And U S. Domestic following a strong January relative to our expectations uncertainty in the market began impacting consumer behavior there.

Brian: <unk> shifted down in February.

Brian: Following further than our expectations and normal shipping patterns and remained at that level in March.

Brian: For the quarter total U S. Adv was down three 5%.

Brian: Ground average daily volume decreased two 5% year over year and total air average daily volume was down nine 6%.

Brian: Excluding the volume decline from Amazon total Air Adv grew six 2% driven by demand from health care and high Tech customers.

Brian Dykes: Within ground, our new economy product called Ground Saver, which replaced Sure Post, had an ADV decline of 8.4%, primarily due to pricing actions we took to grow yields on e-commerce volume. This is the first ADV decline we've seen in this product in five quarters as we have leaned into revenue quality. For the quarter, B2B average daily volume was up 1.5% compared to last year. Growth was driven by returns, which increased 8.8% year over year. We also saw ADB strength from healthcare and high-tech customers. Average daily volume decreased 7% year-over-year, driven by our managed decline in volume from Amazon, our focus on revenue quality, and some demand softening.

Brian: Within ground, our new economy protocol ground saver, which replace sherpas at an Adv decline of eight 4% primarily due to pricing actions, we took to grow yields on E Commerce volume.

Brian: This is the first Adv decline we've seen in this product in five quarters as we've leaned into revenue quality.

Brian: For the quarter <unk> average daily volume was up one 5% compared to last year.

Brian: Growth was driven by returns, which increased eight 8% year over year.

Brian: We also saw Adv strength from health care and high Tech customers.

Brian: <unk> average daily volume decreased 7% year over year, driven by our managed decline in volume from Amazon or focus on revenue quality and some demand softness.

Brian Dykes: In terms of customer mix, we saw strong ABV growth from S&B customers of 4%. In the first quarter, S&Bs made up 31.2% of total U.S. volume. This is the highest S&B concentration we've seen in 10 years, and it is driving meaningful change in overall volume and revenue quality.

Brian: In terms of customer mix, we saw strong ADB growth from SMB customers of 4%.

Brian: In the first quarter Smb's made up 31, 2% of total U S. Volume. This is the highest F&B concentration we've seen in 10 years and is driving meaningful change in overall volume and revenue quality.

Brian Dykes: Moving to revenue. For the first quarter, U.S. domestic generated revenue of $14.5 billion, up 1.4% compared to last year, driven by increases in air cargo. In the first quarter, revenue per piece increased 4.5% year-over-year, which was the strongest revenue-per-piece growth rate we've seen in eight quarters, and it partially offset declines in volume. Breaking down the components of the 4.5% revenue per piece improvement. The combination of base rates and package characteristics increase the revenue per piece growth rate by 240 bases. The net impact of customer mix and product mix increase the revenue per piece growth rate by 170 basis.

Brian: Moving to revenue for the first quarter U S domestic generated revenue of $14 5 billion.

Brian: Up one 4% compared to last year driven by increases in air cargo.

Brian: In the first quarter revenue per piece increased four 5% year over year, which was our strongest revenue per piece growth rate, we've seen in eight quarters, and a partially offset declines in volume.

Brian: Breaking down the components of the four 5% revenue per piece improvement.

Brian: The combination of base rates and package characteristics increase the revenue per piece growth rate by 240 basis points.

Brian: The net impact of customer mix and product mix increased the revenue per piece growth rate by 170 basis points.

Brian Dykes: Lastly, fuel drove a 40 basis point increase in the revenue per piece growth rate.

Brian: Lastly, fuel drove a 40 basis point increase in the revenue per piece growth rate.

Brian Dykes: Turning to cost. Total expense increased 0.2 percent, including an increase in air cargo. We continued to drive efficiency in the quarter as we reduced purchase transportation costs from insourcing 100 percent of ground saver volume for final mile delivery, partially offsetting the increase in delivery costs. And we lowered small package block hours within our air network in response to the changing volume levels. These cost reductions were partially offset by expenses related to challenging weather. In the first quarter, cost per piece increased 3.7 percent. U.S. domestic segment delivered $1 billion in operating profit, a 19.4% increase compared to the first quarter of 2024.

Brian: Turning to costs.

Brian: <unk> expense increased 2%, including an increase in air cargo, we continue to drive efficiency in the quarter as we reduced purchase transportation costs from in sourcing 100% of ground favor volume for final mile delivery parsed.

Brian: Partially offsetting the increase in delivery cost.

Brian: And we lowered small package block hours within our air network in response to the changing volume levels. These cost.

Brian: <unk> were partially offset by expenses related to challenging weather.

Brian: In the first quarter cost per piece increased three 7%.

Brian: U S domestic segment delivered $1 billion in operating profit a 19, 4% increase compared to the first quarter of 2024.

Brian Dykes: Operating margin was 7%, a year-over-year increase of 110 basis points.

Brian: Operating margin was 7% a year over year increase of 110 basis points.

Brian Dykes: Moving to our international segment. We leverage the agility of our integrated global network to navigate this period of uncertainty and grew international average daily volume for the second consecutive quarter. Total international ADV increased 7.1% with all regions growing average daily volume versus last year. International domestic average daily volume increased 4.8% compared to last year, led by Canada. On the export side, average daily volume increased 9.3% year-over-year. Asia and Europe delivered double-digit export growth throughout the quarter. And at a country level, 15 of our top 20 export countries grew export ADV. In the first quarter, international revenue was $4.4 billion, up 2.7% from last year, as we expected.

Brian: Moving to our international segment.

Brian: We leveraged the agility of our integrated global network to navigate this period of uncertainty and grew international average daily volume for the second consecutive quarter.

Brian: Total international Adv increased seven 1% with all regions growing average daily volume versus last year.

Brian: International domestic average daily volume increased four 8% compared to last year led by Canada.

Brian: On the export side average daily volume increased nine 3% year over year.

Brian: Asia, and Europe delivered double digit export growth throughout the quarter and at the country level 15 of our top 20 export countries grew export Adv.

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

Brian: A two 7% from last year as we expected.

Brian Dykes: Revenue per piece declined year-over-year due to a stronger U.S. dollar and lower demand-related surcharges. Operating profit in the international segment was $654 million, down 4.1% year-over-year due to a mixed shift to more economy services in Europe. lower demand related surcharges, and investments we are making to expand weekend services in Europe. International Operating Margin in the first quarter was 15%.

Brian: Revenue per piece declined year over year due to a stronger U S dollar and lower demand related surcharges.

Brian: Operating profit in the international segment was $654 million down four 1% year over year due to a mix shift to more economy services in Europe.

Brian: Lower demand related surcharges and investments, we are making to expand weekend services in Europe.

Brian: International operating margin in the first quarter was 15%.

Brian Dykes: Moving to Supply Chain Solution. And the first quarter revenue was $2.7 billion. Revenue decreased $471 million, driven by a reduction of $563 million in revenue from Coyote due to our divestiture of this business in 2024. Within supply chain solutions, air and ocean forwarding revenue was flat the last year. Air freight revenue was slightly lower year over year due to lower volume, which is more than offset by higher market rates in ocean. Core Logistics Revenue by 5.1%. and UPS Digital, including Rody and Happy Returns, through revenue 32.5% year-over-year. In the first quarter, Supply Chain Solutions generated operating profit of $98 million.

Brian: Moving to supply chain solutions.

Brian: In the first quarter revenue was $2 7 billion.

Brian: Revenue decreased $471 million, driven by a reduction of $563 million in revenue from Coyote due to our divestiture of this business in 2024.

Brian: Within supply chain solutions.

Brian: Air and Ocean forwarding revenue was flat to last year Air freight revenue was slightly lower year over year due to lower volume, which was more than offset by higher market rates in ocean.

Brian: Core logistics grew revenue by five 1%.

Brian: And <unk> digital including Rodi and happy returns grew revenue 32, 5% year over year.

Brian: In the first quarter supply chain solutions generated operating profit of $98 million.

Brian Dykes: Operating margin was 3.6 percent, a decline of 320 basis points compared to last year, primarily driven by cost pressure in our mail innovation.

Brian: Operating margin was three 6% a decline of 320 basis points compared to last year, primarily driven by cost pressure in our mail innovations business.

Brian Dykes: This is a postal injection product and our contract with USPS expired at the end of 2024. The new rates from the USPS are causing short-term cost pressure, which we expect to address as we make adjustments to that business. Walking through the rest of the income statement, we had $222 million of interest expense. Our other pension income was $37 million, which was higher than we anticipated due to updated expected return on asset assumptions. And our effective tax rate for the first quarter was approximately 22.5%.

Brian: This is a postal injection product and our contracts with the USPS expired at the end of 2024.

Brian: The new rates from the USPS are causing short term cost pressure, which we expect to address as we make adjustments to that business.

Brian: Walk you through the rest of the income statement, we had $222 million of interest expense or.

Brian: Our other pension income was $37 million, which was higher than we anticipated due to updated expected return on asset assumptions.

Brian: And our effective tax rate for the first quarter was approximately 22, 5%.

Brian Dykes: Turning to cash and share on a return. In the first quarter, we generated $2.3 billion in cash from operations. Pre-cash flow for the period was $1.5 billion. Also in the first quarter, UPS paid $1.3 billion in dividends to share owners, and we repurchased $1 billion of our shares, completing our share repurchase target for the year.

Brian: Turning to cash and shareowner returns.

Brian: In the first quarter, we generated $2 $3 billion in cash from operations.

Brian: Free cash flow for the period was $1 5 billion.

Brian: Also in the first quarter EPS paid $1 3 billion in dividends to shareowners, and we repurchased $1 billion of our shares completing our share repurchase target for the year.

Brian Dykes: Now let me provide an update on our cost out and network reconfiguration effort. As we've discussed, we're reducing the amount of volume we deliver for Amazon by more than 50% by June of 2022. Associated with this volume reduction, we are undertaking the largest network reconfiguration in our history. This effort has been combined with our Network of the Future initiative, as both will help drive us to a more efficient network. The first phase of our network reconfiguration includes 164 operational closures, including 73 building closures, by the end of June of this year. And there's more to come.

Brian: Now, let me provide an update on our cost out and network reconfiguration efforts.

Brian: As we've discussed.

Brian: We are reducing the amount of volume we delivered for Amazon by more than 50% by June of 2026.

Brian: Associated with this volume reduction we are undertaking the largest network reconfiguration in our history.

Brian: This effort has been combined with our network of the future initiative as both will help drive us to a more efficient network.

Brian: First phase of our network reconfiguration includes 164 operational closures, including 73 building closures by the end of June of this year.

Brian: And theres more to come these.

Brian Dykes: These actions will enable us to expand our U.S. domestic operating margin and increase profitability. Our reconfiguration plan is comprehensive and includes everything from closing buildings, reducing positions, and cutting support costs through efficiency reimagining. To help you track along with our progress, we've grouped associated costs into three buckets. First is variable costs, which captures operational hours and flexes down quickly with volume. Second is semi-variable cost, which is represented by operational positions and will also be adjusted to match volume levels. And third is fixed costs, which includes closing buildings and reducing expense from support functions, both of which have specific completion dates assigned.

Brian: These actions will enable us to expand our U S domestic operating margin and increased profitability.

Brian: Our reconfiguration plan is comprehensive and includes everything from closing buildings, reducing positions and cutting support costs through efficiency re imagined.

Brian: To help you track along with our progress.

Brian: We have grouped associated costs in the three buckets first as variable costs, which captures operational hours and flexes down quickly with volume.

Brian: Second is semi variable cost, which is represented by operational positions and we will also be adjusted to match volume levels.

And third is fixed costs, which includes closing buildings and reducing expense from support functions both of which has specific completion dates aside.

Brian Dykes: Our Network Reconfiguration and Efficiency Reimagined Program is aligned with our anticipated Amazon volume reduction in 2025, and is expected to remove $3.5 billion in expense this year. Splitting the savings between our three cost buckets, approximately 35% of our cost reduction will come from variable costs. About 35% will come from semi-variable, and about 30% will come from savings and fixed costs.

Brian: Our network reconfiguration and efficiency re imaging program is aligned with our anticipated Amazon volume reduction in 2025.

Brian: And as expected to remove $3 $5 billion in expense this year splitting the savings between our three cost buckets, approximately 35% of our cost reduction will come from variable costs.

Brian: About 35% will come from semi variable.

Brian: And about 30% will come from savings in fixed costs.

Brian Dykes: Now let me walk you through some of the details and how progress accelerates through the year. Starting with the pace of Amazon's volume decline. In the first quarter, Amazon ADV was down 16% year over year, which was more than we originally planned. Second quarter, Amazon ADV is also anticipated to be down 16%, which is less than we originally thought. And looking at the first and second quarters together, our total expected Amazon decline for the first half of 2025 is on track. Then in the back half of this year, the ADV decline is expected to be approximately 30% in each of the third and fourth quarters.

Brian: Now, let me walk you through some of the details and how progress accelerates through the year.

Brian: Starting with the pace of Amazon's volume decline in the first quarter, Amazon Adv was down 16% year over year.

Brian: Which was more than we originally planned.

Brian: Second quarter Amazon Adv is also anticipated to be down, 16%, which is less than we originally planned.

Brian: And looking at the first and second quarters together, our total expected Amazon declined for the first half of 2025 is on track.

Brian: Then in the back half of this year. The Adv decline is expected to be approximately 30% in each of the third and fourth quarters.

Brian Dykes: Looking at variable costs, this year associated with the Amazon volume decline, we plan to reduce total operational hours by approximately 25 million hours. Our reduction in hours was on track through the first quarter. Moving to semi-variable costs, our operational reduction target for 2025 is around 20,000 positions. Position changes are not only connected to the buildings we are closing, but will also be made across the entire U.S. network. Our planned reductions are in line with the total Amazon volume decline, and our semi-variable cost-out efforts were on track through the first quarter. In our fixed-cost bucket, we expect to close 73 buildings by the end of June.

Brian: Looking at variable cost.

Brian: This year associated with the Amazon volume decline, we plan to reduce total operational hours by approximately 25 million hours.

Brian: A reduction in hours was on track through the first quarter.

Brian: Moving to semi variable costs, our operational reduction target for 2025 is around 20000 positions.

Brian: Physician changes are not only connected to the buildings. We are closing, but will also be made across the entire U S network.

Brian: Our planned reductions are in line with the total Amazon volume decline in our semi variable cost out efforts, we're on track through the first quarter.

Brian: And our fixed cost bucket, we expect to close 73 buildings by the end of June about two thirds of the buildings, we are closing or in the eastern part of the country with the remainder in the west.

Brian Dykes: About two-thirds of the buildings we are closing are in the eastern part of the country, with the remainder in the west. As an engineering-driven company, we've developed a detailed checklist for each building closure to ensure that we continue to provide industry-leading service to our customers. Assist our employees through these changes and leverage our network planning tools and other technology to efficiently process volume in our network.

Brian: As an engineering driven company, we've developed a detailed checklist for each building closure to ensure that we continue to provide industry leading service to our customers.

Brian: Assist our employees through these changes and leverage our network planning tools and other technology to efficiently process volume in our network.

Brian Dykes: And lastly, as Carol mentioned, our Efficiency Reimagined initiatives that are redesigning many end-to-end processes, like procurement and customer onboarding, are underway and we expect to accelerate these savings starting in the second quarter. We are pleased with the progress we made in the first quarter with our cost out and network reconfiguration efforts related to the accelerated glide down of Amazon volume. And we are on track to achieve our 2025 cost reduction target of $3.5 billion.

Brian: And lastly, as Carol mentioned, our efficiency re imagine initiatives that are redesigning many end to end processes by procurement and customer Onboarding are underway and we expect to accelerate these savings starting in the second quarter.

Brian: We are pleased with the progress we've made in the first quarter with our cost out of network reconfiguration efforts related to the accelerated glide down of Amazon volume.

Brian: And we are on track to achieve our 2025 cost reduction targets of $3 5 billion.

Brian Dykes: Now turning to guidance for 2025. The macro environment is highly uncertain due to changing trade policy and tariff uncertainty. As a global carrier, the eventual outcomes could result in pressure in some parts of our business and create new opportunities in others. We've modeled several different scenarios for how the balance of the year might play out so that we can quickly pivot, continue supporting our customers, and lean into growth. And as Carol mentioned, we're also closely monitoring our direct exposure related to our purchasing and capital plan.

Brian: Now turning to guidance for 2025.

Brian: The macro environment is highly uncertain due to changing trade policy and tariff uncertainty.

Brian: As a global carrier the eventual outcomes could result in pressure in some parts of our business and create new opportunities and others.

Brian: Modeled several different scenarios for how the balance of the year might play out so that we can quickly pivot continue supporting our customers and lean into growth.

Brian: And as Carol mentioned, we're also closely monitoring our direct exposure related to our purchasing and capital plan.

Brian Dykes: Today I'll provide you with our outlook for the second quarter.

Brian: Today I'll provide you with our outlook for the second quarter, we are not providing any updates to our consolidated full year outlook until there is more certainty in the macro environment.

Brian Dykes: We are not providing any updates to our consolidated full year outlook until there's more certainty in the macro environment. Let's start with our assumptions for the second quarter. In our international business, we have factored in announced tariffs and changes to de minimis exemptions. We also expect weakening demand on the China to U.S. trade lane will be partially offset by two factors. First is growth on China to non-U.S. lanes, and second is growth from the rest of the world inbound to the U.S.

Brian: Let's start with our assumptions for the second quarter.

Brian: In our international business, we have factored in announced tariffs and changes to de minimus exemption.

Brian: We also expect weakening demand on the China U S trade lane will be partially offset by two factors first.

Brian: First is growth on China to non U S Lane and second is growth from the rest of the world inbound to the U S.

Brian Dykes: In our U.S. domestic business, we have included our expectations for the impact of volume and mix from the current levels of consumer demand. And lastly, we are implementing changes with how we process volume within our mail innovations business.

Brian: And our U S. Domestic business, we have included our expectations for the impact of volume and mix from the current levels of consumer demand.

Brian: And lastly, we are implementing changes with how we process volume within our mail innovations business.

Brian Dykes: In the second quarter, on a consolidated basis, revenue is expected to be approximately $21 billion, and operating margin is expected to be approximately 9.3%. In the U.S. in the second quarter, we expect ADV to be down about 9% and revenue to be down low single digits compared to last year. S&Bs will be disproportionately impacted by the uncertain environment, which will add some pressure to operating margins. We expect the U.S. domestic operating margin to expand by approximately 30 basis points compared to last year.

Brian: And the second quarter on a consolidated basis revenue is expected to be approximately $21 billion and operating margin is expected to be approximately nine 3%.

Brian: In the U S. In the second quarter, we expect adv to be down about 9% and revenue to be down low single digits compared to last year.

Brian: Smbs will be disproportionately impacted by the uncertain environment, which will add some pressure to operating margin.

Brian: We expect the U S domestic operating margin to expand by approximately 30 basis points compared to last year.

Brian Dykes: Turning to international, we expect revenue to be down approximately 2% to last year and operating margin to be in the mid-teens due to lower demand related surcharges and trade uncertainties. And in supply chain solutions in the second quarter, revenue is expected to decline approximately $500 million due to the reduction in revenue associated with Coyote in the same period last year. Operating margin is anticipated to be in the high single digit And finally, in the second quarter, in total below the line, we expect approximately $160 million in expense. And we expect the tax rate to be between 23% and 23.5%.

Brian: Turning to international we expect revenue to be down approximately 2% to last year and operating margin to be in the mid teens due to lower demand related surcharges and trade uncertainty.

Brian: And in supply chain solutions in the second quarter.

Brian: Revenue is expected to decline approximately $500 million due to the reduction in revenue associated with Coyote in the same period last year.

Brian: Operating margin is anticipated to be in the high single digits.

Brian: And finally in the second quarter and total below the line, we expect approximately $160 million in expense.

Brian: And we expect the tax rate to be between 23 and 23, 5%.

Brian Dykes: In closing, I'll note that this uncertain environment reinforces why we've taken action to reshape our volume mix, pull costs out, and reconfigure our U.S. network. We are focusing on controlling what we can control and executing our strategy to improve the long-term profitability of our U.S.

Brian: In closing I'll note that this uncertain environment reinforces why we have taken action to reshape our volume mix pull cost out and reconfigure our U S network.

Brian: We are focusing on controlling what we can control and executing our strategy to improve the long term profitability of our U S business drive cash generation and deliver shareowner value.

Brian Dykes: business, drive cash generation, and deliver shareholder value.

Matthew: With that, operator, please open the lines for questions. Thank you. We will now conduct a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality.

Brian: With that operator, please open the lines for questions.

Brian: Thank you we will now conduct a question and answer session.

Brian: If you have any questions or comments. Please press star one on your phone at this time we.

Brian: We do ask that will posing your question. Please pickup your handset if you're listening on speaker phone to provide optimal sound quality.

Tom Wadewitz: Our first question comes from the line of Tom Wadewitz from UBS. Sir, please go ahead with your question. Yes, good morning. Thanks for the question.

Speaker Change: Our first question comes from the line of Tom <unk> from UBS. Sir. Please go ahead with your question.

Speaker Change: Yes, good morning.

Tom Wadewitz: I wanted to see if you could give a sense of I guess the cost, you know, how much of the three and a half billion full year cost kind of comes through and like, how does it build through the year? And then is that like a full offset to the reduction in Amazon revenue or, you know, kind of more or less? So maybe it's more on that. I don't know if you want to offer a thought on how that flows into 26 as well. Maybe that's asking too much, but, you know, if you have kind of a similar number in 26 or more or less, so more on the Amazon cost takeout and three and a half would be great.

Speaker Change: Thanks for the question wanted to see if you could give a sense of.

Speaker Change: I guess.

Speaker Change: <unk>.

Speaker Change: How much of the $3 5 billion full year cost kind of comes can redo.

Speaker Change: Like how does it build through the year.

Speaker Change: And then.

Speaker Change: Is that like a full offset to the reduction in Amazon revenue or.

Speaker Change: Kind of more or less maybe it's more on that I don't know if you want to offer a thought on how that flows into 2006 as well maybe that's too.

Speaker Change: Too much but if you have kind of a similar number in 2006 or more or less so more on the Amazon cost take out between a half would be great. Thank you.

Brian Dykes: Thank. Sure. Thanks, Tom. So on the $3.5 billion, if you think about it in the bucket that we laid out, the variable cost is going to come out in line with the Amazon volume as we kind of laid it out. The semi-variable cost is generally going to follow the same pattern. The fixed cost, what we described is we will be closing 73 buildings in the second quarter, so there's more fixed costs. About 60% of it is weighted towards the back half. Efficiency reimagined is also in that and is also about 60% in the back half.

Bob: Sure. Thanks, Bob.

Bob: Yes, so on the $3 5 billion. If you think about it in the buckets that we laid out right. The variable cost is going to come out in line with the Amazon volume right as we as we kind of laid out the semi variable cost is generally going to follow the same pattern.

Bob: The fixed costs, what we described as we will be closing 73 buildings in the second quarter. So the majority there is more fixed cost about 60% of it is weighted towards the back half efficiency re imagined is also in that and is also about 60% in the back half so you're seeing across those three buckets generally the first it will follow Amazon volume in the us.

Brian Dykes: So you think across those three buckets, generally the first two will follow Amazon volume and the others will be back half weighted. And the Amazon volume decline is higher in the back half of the year than it is in the first half. Correct.

Bob: The others will be back half weighted and the Amazon line decline is higher in the back half of the year than it is in the first horizon as we as we laid out it's about 16% in the first half 30% in the second half.

Brian Dykes: As we laid out, it's about 16% in the first half and 30% in the second half. and looking to 2026? In 2026, look, we will rack, because remember, in the Amazon glide out, it's over the course of 18 months. So in the first half of 2026, there will be incremental, both variable, semi-variable, and fixed cost reductions that we'll lay out as we get into the back half years. But those will be incremental to the three and a half billion that's in 2025. So do we think of it as kind of an exact match or do you take out more costs than the revenue you've got?

Bob: And looking to 2026 and 2026.

Bob: We'll rack because remember in the Amazon glide out it's over the course of 18 months. So in the first half of 2026, there will be incremental both variable semi variable and fixed cost reductions that will lay out as we get into the back half years, but those will be incremental to the $3 1 billion. That's in 2025.

Speaker Change: So do we think of it as kind of an exact match or do you take out more cost and the revenue you lose.

Brian Dykes: Well, I think if you look at what we talked about with the revenue and the cost that we're taking out, we are we are making structural changes to the business to improve the margin. I think we talked about the the revenue that we're losing was non-nutritive to the business. And so we are taking out more costs. So the one thing I would add is on efficiency re-amount. really not tied to the Amazon volume decline. That's about making our business more productive and and and how does that Yeah, so efficiency reimagined is all about making processes more efficient within the business.

Speaker Change: Well I think if you look at what we've talked about with the revenue and the costs that we're taking out we are making structural changes in the business to improve the margin. That's all that I think we talked about the the revenue that we're losing with non nutritive to the business and so we are taking out more cost.

Speaker Change: And the one thing I would add is on efficiency re imagined.

Speaker Change: Really not assigned to the Amazon volume decline Thats about making our business more productive.

Speaker Change: And how does that play out yes, so efficiency re imagined is all about making processes more efficient within the business and so as we do that we will also be taking out about $500 million. This year rolling to $1 billion into 2026 that is going to be back half weighted in 'twenty, five but will be incremental to the piece that's just directly related.

Tom Wadewitz: And so as we do that, we will also be taking out about 500 million this year rolling to a billion into 2026. That is going to be back half waited in 25. But we'll be incremental to the piece that's just directly related to the Amazon volume. It is included in the fixed cost bucket that we laid out, but but it's a route process redesign around restructuring the Great. Thanks for the time. Thank you.

Speaker Change: The Amazon volume. It is included in the fixed cost bucket that we laid out but it's about.

Speaker Change: About process redesign around restructuring in the business.

Speaker Change: Great. Thanks for the time.

Speaker Change: Thank you. Your next question is coming from Ari Rosa from Citigroup. Your line is live.

Ariel Rosa: Your next question is coming from Arie Rosa from Citigroup. Your line is locked. Hi, good morning. Carol, you mentioned this objective of being less dependent on labor going forward. I think there was a headline we saw the other day that you were testing out robotics and leveraging more warehouse automation. Could you just talk about those efforts and how that fits into the Efficiency Reimagined Initiative? What kind of cost savings do you expect to realize from that over the longer term? Thanks.

Ari Rosa: Hi, good morning.

Carol Thank: Carol you mentioned this objective.

Speaker Change: Less dependent on labor going forward I think there was a headline we saw the other day that you were testing out robotics and leveraging more warehouse automation could you just talk about those efforts and how that fits into the efficiency re imagined initiatives, what kind of cost savings you expect to realize that realize from that over the longer term. Thanks.

Carol Tomei: Well, as part of our Network of the Future Initiative, we are looking at automating our buildings. by automating the sort, but there's much more to automation than just automating. We're also looking at the use of robotics for automatic label application, automatic, many other automatic opportunities, unloading and loading trailers, as well as how we sort packages in certain of our functions.

Speaker Change: As part of our network of the future initiatives, we are looking at automating our buildings.

Speaker Change: Automating the sword, but there's much more to automation than just automating. The storage. We're also looking at the use of robotics for automatic label application automatic.

Speaker Change:

Speaker Change: Many other automation opportunities unloading and loading trailers as well as how.

Speaker Change: Or are we sort packages in certain of our functions and maybe I'll turn to nano for a little more comment on that yes, sure. So what youre going to see at the end of this is 400 facilities that are either partially or fully automated on top of that we're working ahead of ourselves is as new automation technology.

Nando Cesarone: And maybe I'll turn to Nando for a little more comment on that. Yeah, sure. So what you're going to see at the end of this is 400 facilities that are either partially or fully automated. On top of that, we're working ahead of ourselves as new automation technology, the application of AI in certain areas to help us with labor is introduced into these operations. And that allows us to really take costs out of the network and also the end state is 200 facilities that will be closed in our network. And, of course, as we work through this, we're creating capacity for ourselves through the productivity improvements.

Speaker Change: The application of AI in certain areas to help us with labor.

Speaker Change: As introduced into these operations and that allows us to really take cost out of the network that also.

Speaker Change: The end state is 200 facilities that will be closed in our network.

Speaker Change: And of course as we work through this we're creating capacity for ourselves through the productivity improvements.

Nando Cesarone: And, again, you know, as we look at this, we've developed really good muscle here, and we're moving at a speed that we're all really happy with. But the end result will be a much more efficient operation with less dependency on labor. And as we grow and scale up, that's going to continue to provide benefits. And so that activity, coupled with our Amazon activity, gives us confidence that we'll reach that 12% U.S. operating margin by the end. That's right. And I would say we're, you know, as Carol and Nando have articulated, we're not stopping, right? So while we're drawing down less efficient capacity, we're automating at the same time, we told you in the fourth quarter, that 63% of our volume went through automated hubs, that's now 64, which is up about four and a half percent year over year.

Speaker Change: Again.

Speaker Change: As we look at this we've developed really good muscle here and we're moving at a speed that we're all really happy with.

Speaker Change: But the end result will be a much more efficient operation with less dependency on labor and as we grow and scale up that's going to continue to provide benefits for UBS and so as that activity coupled with our Amazon activity gives us confidence that we'll reach that 12% operating margin.

Speaker Change: It does.

Speaker Change: That's right and I would say.

Speaker Change: As Carolyn Endo has articulated we're not stopping right. So while we are drawing down less efficient capacity. We're automating at the same time, we saw during the fourth quarter to 63% of our volume went through automated hubs. That's out 64, which is up about four 5% year over year and so we're moving towards a.

Nando Cesarone: And so we're moving towards a more efficient, more efficient, more scalable network, Bascom.

Speaker Change: More efficient net more efficient more scalable network faster.

Nando Cesarone: Great, thank you.

Speaker Change: Great. Thank you.

Scott Group: Thank you. Your next question is coming from Scott Group from Wolf Research. Your line is live. Hey, thanks. Good morning.

Speaker Change: Thank you. Your next question is coming from Scott Group from Wolfe Research. Your line is live.

Speaker Change: Okay.

Speaker Change: Hey, Thanks, good morning, So I just want to understand that.

Scott Group: So I just want to understand that the of the three and a half billion, how much has been realized to date in Q1? And then when I look at Q1 margins, domestically improved 110 base points. I think you said second quarter only 30 basis points. Is that a function of more macro and getting worse? Or is that Well, I guess why is that? Why are we seeing a deceleration in the more of an improvement in Q2, as I would imagine the cost savings are? Sure. So Scott, just to hit on the first point, about $500 million of the $3.5 billion is in Q1.

Speaker Change: The $3 5 billion.

Speaker Change: How much has been realized to date in Q1.

Speaker Change: And then when I look at Q1 margins.

Speaker Change: <unk> improved 110 basis points I think you said second quarter, only 30 basis points.

Speaker Change: A function of more Matt.

Speaker Change: Group.

Speaker Change: Getting worse or is that.

Speaker Change: Well I guess why is that why are we seeing a deceleration.

Speaker Change: It was an improvement in Q2.

Speaker Change: I would imagine the cost savings are ramping.

Speaker Change: Sure. So Scott just to add on the first point about $500 million of the $3 5 billion in Q1.

Scott Group: And like I said, that will ramp as both the Amazon volume comes out as well as our initiatives ramp as we go through Q2.

Speaker Change: And like I said that will ramp as both the Amazon volume comes out as well as our initiatives ramp as we go through Q2, there's a couple there's a couple of things happening in Q2 and the.

Scott Group: There's a couple things happening in Q2. And the first is, we have to, as we outlined, we built into our guide the expectation from our customers of what the announced tariffs will be, right? The net impact of that is that we do see some volume deceleration, in both enterprise and S&B. Particularly in S&Bs, they do not have the tools to deal with the changes that our enterprise customers do. That will put some pressure on RPP and margin. The second piece I would add is, look, we're closing 7% of our U.S. buildings in the quarter, right?

Speaker Change: The first is we have bill as we outlined we built into our guide the expectation from our customers of what the announced tariffs will be right. The net impact of that is that we do see some volume deceleration in both enterprise and SMB, particularly in F&B. They did not have the tools to deal with the changes.

Speaker Change: That our enterprise customers do that will put some pressure on RVP and margin.

Speaker Change: The second piece I would add is look we're closing 7% of our U S buildings in the quarter Alright, and so we have built in some chaos costs in order to manage the volume and maintain service as we go through that process in.

Scott Group: And so we have built in some chaos costs in order to manage the volume and maintain service as we go through that process.

Scott Group: It may be just a little bit more color on the SMBs. Many of our SMBs, as we talk to them, are 100% single-sourced from China. And this is causing so much uncertainty in the marketplace because the administration has announced, as you know, 145% tariff on China goods starting May. and the elimination of the de minimis. So our SMBs, who don't have the working capital capabilities to pull forward inventory, are saying, wow, how are we going to handle this cost increase that's coming our way? It doesn't mean that they're not trying to look for alternate forms of supply.

Speaker Change: And maybe just a little bit more color on the SMB as many of our Smbs as we talk to them are 100% single sourced from China and this is causing so much uncertainty in the marketplace. Because the administration has announced as you know a 145% tariffs on China, starting may segment, and the elimination of that day.

Speaker Change: Minimus exemption solar Smbs, who don't have the working capital capabilities to pull forward inventory are saying well how are we going to handle this cost increase that's coming our way it doesn't mean that they're not trying to look for alternative forms of supply. They are working with original equipment manufacturers trying to move to other countries, but as you can appreciate that.

Scott Group: They're working with original equipment manufacturers trying to move to other countries, but as you can appreciate, the large companies get to take the first phone call, and they're the ones that are willing to work on changing supply chains. So we just factored that into our forecast for Q2, understanding candidly there's so much uncertainty around the China tariffs. We know it's been announced. We don't know, actually, if it will happen. We don't know if it will stick. There are many things we don't know, but we thought it was prudent to factor that into our forecast. Okay, thank you.

Speaker Change: Large companies get the take the first phone call and they are the ones that are willing to work on changing supply chain. So we just weren't factored that into our forecast for Q2 understanding candidly. There's so much uncertainty around the China tariffs, we know what's been announced we don't know actually if it will happen. We don't know if that will stick. There are many things we don't know of what we saw.

Speaker Change: And it was prudent to factor that into our view.

Speaker Change: Okay. Thank you.

Scott Group: Thank you.

Speaker Change: Thank you. Your next question is coming from Jordan <unk> from Goldman Sachs. Your line is live.

Jordan Alliger: Your next question is coming from Jordan Alliger from Goldman Sachs. Your line is live. Yeah, hi.

Jordan Alliger: You know, realizing the tariff stuff and supply chains are a bit of a moving target right now, any updates on sort of your secular viewpoint for domestic and international volume growth, sort of factoring out Amazon now that you're reducing it and maybe contemplating, I don't know, shifts in supply chains, moving away from China, rest of the world? I know you'd given some thoughts on that at your investor day a while back. Any updates given all the noise that's going on right now? Thank you. Well, Jordan, you're right. It's a very uncertain market. But if we go back to the beginning of the year, the small package industry in the United States was expected to be very low single-digit growing from a volume perspective.

Speaker Change: Yeah, Hi.

Speaker Change: <unk>, the tariff stuff and supply chains are a bit of a moving target right now any updates on sort of your secular viewpoint for domestic and international volume growth sort of factoring out Amazon now that you're reducing it and may be contemplating.

Speaker Change: No shifts in supply chains, moving away from China rest of the World I know you've given some thoughts on that at your Investor day, a while back any updates given all the noise that's going on right now thank you.

Speaker Change: Well, Jordan Youre right, its very uncertain market, but if we go back to the beginning of the year. The small package industry in the United States slips expect it to be very low single digit growing from a volume perspective, and if you look at value, including <unk> increases again low single digit outside of the U S.

Jordan Alliger: And if you look at value, including GRI increases, again, low single-digit. Outside of the U.S., you know, it's a big addressable market. We size the market by the United States as $99 billion. And it was expected to be growing in the mid-single digits, including in that $99 billion is about $18 billion of healthcare, which was expected to grow in the high single digits. And, you know, all of those growth projections were as of the beginning of the year. Healthcare continues to be a bit isolated from this. We had good healthcare growth. You know, healthcare growth in the first quarter.

Speaker Change: As you know is a big addressable market, we size the market outside the United States $99 billion and it was expected to be growing in the mid single digits.

Speaker Change: Including in that 99 billion dollar is about.

Speaker Change: $18 billion of healthcare, which is expected to grow in the high single digits.

Speaker Change: All of those growth projections, where as of the beginning of the year healthcare continues to be a bit isolated from this we had good health care growth health carriers is reflected in all three of our operating segments. We had good help their growth.

Jordan Alliger: If you look at average daily net revenue, which adjusts for one less operating day, it was up nearly 5% year on year. So we were pleased with that performance.

Speaker Change: In the first quarter. If you look at average daily net revenue, which adjusts for one less operating day was up nearly 5% year on year. So we were pleased with that performance.

Carol Tomei: And what I'm happy about from a UPS perspective is because of our presence in over 200 countries and territories around the world, we can move where supply chains move. And they're going to move. We know they're going to move. And we can move where they move. We've got a When China tariffs were imposed, we saw trade move. You know, China to U.S. declined, but China and the rest of the world increased, and it all leveled out, and our international business actually grew. So because of our integrated network and our presence, we'll be able to manage through this.

Speaker Change: And what im.

Speaker Change: What I'm happy about from an EPS perspective is because of our presence in over 200 countries and territories around the world. We can move our supply chain and Theyre going to move we know theyre going to move and we can move where they move we've got proof point. If we go back to 2018, when China tariffs were imposed.

Speaker Change: Trade moves China to U S decline, but China rest of the world increased and it all leveled out in our international business actually growth so because of our integrated network and our presence we will be able to manage through that.

Jordan Alliger: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you. Your next question is coming from David Vernon from Bernstein. Your line is live.

David Vernon: Your next question is coming from David Vernon from Bernstein. Your line is Hey, good morning, and thanks for taking the question.

Speaker Change: Hey, good morning, and thanks for taking the question so Brian maybe just to clarify if we take the three and a half that we're going to earn.

David Vernon: So Brian, maybe just to clarify, if we take the three and a half that we're going to earn, or the three and a half million in cost savings that we're going to get this year, can you just give us an annualized number of what that would look like for 2026?

Speaker Change: The 300 million of cost savings that we're going to get it. This year could you just give us an annualized number of what that would look like for 2026 and then my question is really around the domestic side of the business with the surplus in sourcing.

David Vernon: And then my question is really around the domestic side of the business with the SharePost insourcing. You guys put a pretty healthy price increase in there. Could you give us a sense for whether you're seeing any book away or any sort of movement away in volume for stuff that you would have wanted to keep in that insourcing, or whether those pricing gains are actually sticking in there? Thank you.

Speaker Change: You guys put a pretty healthy price increase in there could you give us a sense for whether youre seeing any book away or any.

Speaker Change: So the movement away and volume for stuff that you would have wanted to keep and that in sourcing or whether those pricing gains are actually stickier. There. Thank you.

Brian Dykes: Yeah, so Dave, on the first point, so the $3.5 billion is an in-year 2025 number. I would expect a similar number as we do a kind of a similar type drawdown into 2026. But we'll clarify that as we go later into the year.

Speaker Change: So Dave I'll on the first point to the $3 $5 billion in in year 2025 number I would expect a similar number as we do a kind of a similar.

Speaker Change: Similar type drawdown and into 2026.

Speaker Change: But we'll clarify that as we go later into the year.

Brian Dykes: On the ground saver volume, so we have seen ground saver decline. It's down about 8.5% in the quarter. But I will say the majority of that has been intentional decline with specific customers as we both adjust the cost structure to now an in-source model and the new product, as well as we lean into revenue quality. So there has been some intentional decline of less nutritive business. And we would expect to see that in Q2 as well. But you're not seeing any sort of additional churn or turnover from the competition with the post office? Right now.

Speaker Change: On the ground savr volumes.

Speaker Change: So we have seen ground saver decline is down about eight 5% in the quarter, but I will say the majority of that it has been intentional decline with specific customers as we both adjust the cost structure to now be an in sourced model and the new products as well as we lean into revenue quality. So there has been some intentional.

Speaker Change: <unk> decline of less nutritive business, and we would expect to see that in Q2.

Speaker Change: Maybe youre not seeing any sort of additional churn or turnover from the from the.

Speaker Change: The competition with the post office, Okay fair enough.

Speaker Change: And maybe just a little color there. That's one reason why we in source it because of the liability that we provide to our customers and our on time delivery was almost 97% in the first quarter yes.

Unknown Executive: Transcripts provided by Transcription Outsourcing, LLC.

Unknown Executive: Our on-time in the delivery was almost 97%. Thank you.

Speaker Change: Okay.

Thank you. Your next question is coming from Chris Wetherbee from Wells Fargo. Your line is live.

Chris Wetherbee: Your next question is coming from Chris Wetherbee from Wells Fargo. Your line is live. Hey, thanks. Good morning, guys. Maybe a question on international. I think you noted for the second quarter mid-teens margins, I guess also that the China-US lane was the most profitable. So I want to get a sense, is this sort of the right profitability level for the business going forward, assuming things don't change materially on the tariff side with China? Just kind of get a sense of, you know, maybe if there's specific items impacting the second quarter, or is this more of a run rate, just given what the trade looks like in the second quarter?

Chris Wetherbee: Thanks, Good morning, guys.

Speaker Change: A question on International I think you noticed in the second quarter mid teens margins I guess also that the China U S. Lane was the most profitable just want to get a sense is this sort of the right.

Speaker Change: Profitability level for the business going forward, assuming things don't change materially on the tariff side with China, just kind of get a sense of maybe if there are specific items impacting the second quarter or is this more of a run rate just given what the trade looks like in the second quarter.

Brian Dykes: Yeah, so in the second quarter, there's a couple moving pieces here, because as Carol mentioned, trade flows are shifting, and that's what we anticipate as well. So I outlined in my prepared remarks how we think about the move in international. We expect China to the U.S. to decline a little less than 25%, but that's going to be offset by material improvements in China to the rest of the world and the rest of the world to the U.S. So there's some shifting trade lanes that we're anticipating in the second quarter guide that we expect to see.

Speaker Change: Yes, so in the second quarter. There is theres a couple of moving pieces here because as Carol mentioned trade flows are shifting and thats, what we anticipate as well so.

Speaker Change: Outlined in my prepared remarks, how we think about the move in international we expect China to the U S declined a little less than 25%, but that's going to be offset by material improvements in China, and the rest of world and rest of world to the U S. So there is some shifting trade lanes that we're anticipating in the second quarter guide you'll see it.

Speaker Change: That we expect to see now what that means is China. The U S is our most profitable trade lane, there will be a little bit of profit headwind look longer term, we expect international to get back to this mid to high teens.

Brian Dykes: Now, what that means is China to the U.S. is our most profitable trade lane. There will be a little bit of profit headwind, but longer term, we expect international to get back to this mid to high teen margin as a long-term margin.

Speaker Change: Teens margin as our long term margin.

Brian Dykes: Yeah, and I think the first quarter margin was suppressed a bit because of the investments we're making in Europe for weekend delivery. We will lap those investments later in the year, so that will give us margin expansion at that point. We really like the volume that we're seeing as we provide that weekend service for our customers, so this is a good investment that we made. Absolutely. Great, thank you. Thank you.

Speaker Change: I think the first quarter margin was depressed a bit because of investments, we're making in Europe for weekend delivery, we will lap those investments later in the year. So that will give us margin expansion at that point, we really like.

Speaker Change: Volume that we're seeing as we provide that weekend service for our customers.

Speaker Change: Good investment that we made absolutely.

Speaker Change: Great. Thank you.

Speaker Change: Thank you. Your next question is coming from Ken Hoster from Bank of America. Your line is live.

Kenneth Hoexter: Your next question is coming from Ken Hoexter from Bank of America. Your line is live. Hey, great. So maybe just digging in on that international side, the minimus impact and kind of the flow through, and then maybe the sensitivity. Carol, you mentioned kind of the postponing of shipments, you know, from the small shippers. Is this something you think we're drawing, kind of like Brian said, we're drawing down inventories that we should expect some sort of snapback in, you know, once the these tariffs are settled? Is that kind of how you're thinking about kind of the pace of goods?

Ken Hoster: Hey, great.

Speaker Change: Maybe just digging in on that international side, the de Minimis impact kind of the flow through.

Speaker Change: Then maybe the sensitivity Carol you mentioned kind of the postponing of shipments from.

Speaker Change: Small small.

Speaker Change: Shippers is this something you think we're drawing it sounds like Brian said, we're drawing down inventories that we should expect some sort of snapback and whats.

Speaker Change: Whats. The these tariffs are settled or is that kind of how you're thinking about kind of the pace of goods just want to understand because you've given us <unk> thoughts you pulled the full year just thinking about how quick we could see that reverse and it may be as policy is set.

Kenneth Hoexter: Just want to understand, because you're giving us two key thoughts, you pulled the full year, just thinking about how quick we could see that reverse and maybe as policy is set.

Carol Tomei: Yeah, so the real real point of uncertainty is this China tariff matter. And so we're hoping to have that. Clearer, by the end of the second quarter. The de minimis implications means that for China imports, they will be charged duties and tariffs for $800 or less, but hadn't been. So we have factored that into our outlook for our SMBs because they could be impacted. We are well positioned to do that. In fact, we clear goods without manual intervention about 85% of the time. So we're in great shape to be able to clear these goods if more items are coming through with tariffs identified on them.

Speaker Change: So.

Speaker Change: Real real point of uncertainty is this China tariff matter and so we're hoping to have that.

Speaker Change: Clearer.

Speaker Change: We entered the second quarter.

Speaker Change: De minimis implications means that China imports they will be charged duties.

Speaker Change: And tariffs for $800 or less that hasn't been the case before so we have factored that into our outlet for our SMB because it could be impacted by this we think they will be impacted by this but in terms of clearing goods across the borders we are well positioned to do that in fact, we clear goods without manual intervention about 80.

Speaker Change: 5% of the time, so we're in great shape to be able to clear. These goods as more items are coming through with tariffs identified on them what else would you want to add to that Ken.

Brian Dykes: What else would you want to add to that, Brian? I think what you're outlining are some of the scenarios that we've been running. Time is a big factor here on when this gets resolved. The final levels is a big factor here. And ultimately, how our customers end up dealing with it from a price or a margin standpoint. And so those are a lot of the things that we're looking at. That's why there's so much uncertainty in the back half because all those will ultimately impact the U.S. consumer, and we're trying to help our customers deal with it.

Ken Hoster: I think I think you're what you're outlining or some of the scenarios that we've been running time is a big factor here on when this gets resolved. The final levels is a big factor here and ultimately how our customers end up dealing with it from a price or a margin standpoint, and so those are a lot of the things that we're looking at that's why there's so much uncertainty in the back half of <unk>.

Ken Hoster: All of those will ultimately impact the U S consumer and we're trying to help our customers deal with it.

Carol Tomei: Well, consumer sentiment is down from where it was at the beginning of the year. The consumer is still pretty healthy. And so to your question about, well, if inventory levels are being drawn down, will it snap back, well, commerce needs to continue. So one would assume that it will come back, may come back from a different country as importers change their source of origin. But, you know, we're prepared to handle that given our breadth and our presence.

Ken Hoster: Well.

Ken Hoster: Zimmer sentiment is down from where it was at the beginning of the year. The consumer is still pretty healthy and so to your question about inventory levels are being drawn down Louis snap back.

Ken Hoster: Commerce needs to continue so one would assume that it will come back may come back from a different country.

Ken Hoster: Employers change their source of origin that we're prepared to handle that given our breadth and our presence right.

Kenneth Hoexter: I guess if I can just clarify, maybe what I'm confused at is international seems to be kind of in line with the street. But US, that's where the change seems to be made. I just want to make sure that's the message you're sending, because that's down maybe a bit more 300 basis points more than than where expectations were. Yeah, so Ken, yes, you're right. Because in international, remember, as we said, there's going to be some offsetting trade flows here that help the international business balance the China to U.S. trade lane. But ultimately, where a lot of the uncertainty lies is what's the impact to the U.S.

Speaker Change: I guess, if I can just clarify maybe what I'm confused on is international seems to be kind of in line with the street, but U S. That's where the change seems to be that I just want to make sure that the message you're sending cause that's down maybe a bit more 300 basis points more than than where expectations were.

Speaker Change: Yes, so Ken Yes, Youre right and then international remember as we said there's going to be some offsetting trade flows here that healthy international business balance.

Speaker Change: The China to U S trade lane, but ultimately where a lot of the uncertainty lies is what's the what's the impact to the U S customer base, maybe you could give some more color on what we mean by these trade shifts for example, China plus one and what Youre seeing with these new countries, yes, absolutely. So just to bring it to life the export out of the non <unk>.

Brian Dykes: customer base.

Kate Waddington-Steen: So, Kate, maybe you could give some more color on what we mean by these trade shifts. For example, China plus one and what you're seeing with these new countries. Yeah, absolutely. So, just to bring it to life, the export out of the non-China Hong Kong lanes is up double digit from the remainder of the country. A lot of that has to do with the investments that the company made three years ago to really unlock the right to win in that space. And then all regions around the world grew the export. So, we are seeing the shift occur.

Speaker Change: Kinda Hong Kong lanes is up double digits from the remainder of the countries a lot of that has to do with the investments that the company made three years ago to really unlock.

Speaker Change: The right to win in that space and then all regions around the world grew the exports. So we are seeing the shift occurred.

Kate Waddington-Steen: You know, Carol mentioned the 44,000 customers that we interviewed on their supply chains. We're helping SMBs try to move their manufacturing sourcing to, for instance, Mexico. So, that down the road, they would have source more near to the U.S. But it is the rest of the world is growing, I'll give South Korea as one shout out. We talk about our complex healthcare focus as well as international. It's a great market where they both come together and it's growing 24% export. So, it shows that commerce keeps going, health keeps going, and we are positioned with our global network to catch it.

Speaker Change: Errol mentioned, the 44000 customers that we interviewed on their supply chains, we're helping smbs try to move their manufacturing sourcing to for instance, Mexico. So that down the road they would have floors more near to the U S. But it is the rest of the world is growing faster.

Speaker Change: <unk> is one shout out we have we talk about our complex healthcare.

Speaker Change: <unk> as well as international integrate market, where they both come together and it's growing 24% ex.

Ken Hoster: Exports. So it shows that commerce keeps going health keeps going and we are positioned with our global network to catch it. So hopefully that helps Ken yes definitely helps I appreciate it that's helpful. Thank you.

Kate Waddington-Steen: So, hopefully that helps. Yeah, it definitely helps. Appreciate the thoughts. Thanks, guys. Thank you.

Jason Seidel: Your next question is coming from Jason Seidel from TD Cowan. Your line is live. Thank you, operator. Hey, Carol. Hey, Brian and team. Thanks for all the thoughtful data points and feedbacks here that you've provided today. I wanted to focus a little bit on – you talked about 95% of your customers said they're sort of maintaining their outlook, but we'll sort of draw down inventories for the moment. So sort of a two-part question. Number one, what does that do to volumes when your customers are drawing down inventories? And number two, how long do you think they have in terms of an inventory drawdown so we can sort of level set expectations?

Speaker Change: Thank you. Your next question is coming from Jason Seidl from TD Cowen Your line is live.

Jason Seidl: Thank you, operator, Hey, Carol Hey, Brian and team. Thanks for all the thoughtful of data points and feedback that you've provided today I wanted to focus a little bit you talked about 95% of your customers there are sort of maintaining their outlooks, but we'll sort of draw down inventories for the moment. So it sort of a two part question number one what does that do to volumes on your <unk>.

Jason Seidl: Customers are drawing down inventories and number two how long do you think they have in terms of an inventory drawdown. So we can sort of level set expectations.

Carol Tomei: Well. It depends on the importer. Some importers were buying ahead 30 days, 60 days, 90 days. And you can imagine that the larger importers, which would be the larger retailers, were doing that 30, 60, 90 days. Don't think it goes much beyond that, because there's no capacity to hold the inventory. And when we say 95% have started to change or not change their business model, it means they're not changing how they ship their products to the United So that, I think, is encouraging to us that they're not thinking about... exiting the business. They're going to stay in the business.

Jason Seidl: Well.

Jason Seidl: It depends on the importers summit program for buying ahead 30 days 60 days 90 days.

Jason Seidl: Imagine that the larger importers, which would be the larger retailers. We're doing that 30 60 90 days, you'll think it goes much beyond that because there is no capacity to hold the inventory.

Jason Seidl: And when we say, 95% has changed or not changed their business model and if theyre not changing how they ship their products to the United States.

Jason Seidl: So that I think is encouraging to us because they are not thinking about.

Jason Seidl: Entity in the business are going to stay in that business, they're going to let inventory levels up.

Brian Dykes: They're going to let inventory levels roll down. They're going to hope to have certainty on China and then they'll decide what they do going forward. And so on a roll down an inventory, that would be put pressure on your volumes, at least for the near term. But again, remember, trade lanes are shifting. So that means trade from country to U.S. They will move to other trade lanes. So as Brian just shared with you, we're not expecting a big difference in our international business. No, no, as I, Jason, as I mentioned before, so we expect just under 25% decline in China to the U.S.

Jason Seidl: Roll down Theyre going to hope to have certainty on China, and then they'll decide but they do going forward.

Jason Seidl: And so on are rolled out in inventory that would be put pressure on your volumes at least for the near term.

Jason Seidl: But again remember trade lanes are shifting so that means trade from country to U S. They will move other to other trade lanes. So it's Brian.

Jason Seidl: <unk>.

Shared with you, we're not expecting a big difference in our international business in our second quarter no no as I as Jason as I mentioned before so we expect just under 25% decline in China and the U S. That's offset by 40% increase in China to rest of world and so we're seeing anything shifted manufacturers in China are not slowing down our shifting where the.

Brian Dykes: That's offset by a 40% increase in China to the rest of the world. Right? And so we're seeing these things shift because manufacturers in China are not slowing down. They're shifting where the goods are going. And they're providing incentives to make that happen.

Jason Seidl: Goods are going.

Jason Seidl: And they're providing incentives to make that happen to.

Speaker Change: Chinese company.

Brian Dykes: And Brian, as it shifts to sort of a China plus one, I guess, outlook there, do you need to shift some costs around to handle increased business or do you have capacity in some of those other areas? So, we manage our network in a variable basis like that all the time. That's come to work at UPS, is shifting the assets around to flex where our customers need us to be. And that's part of having a globally integrated network. We can clear it, we can move it, we can deliver it in any country in the world where you need us.

Speaker Change: And Brian as it shifts to sort of a China, plus one I guess outlook.

Speaker Change: Outlook, there do you need to shift some costs around to handle increased business or do you have capacity in some of those other areas.

Speaker Change: So we manage we manage our network in a variable basis like that all the time.

Speaker Change: That's come to work at UBS is shifting the assets around to flex, where our customers need us to be and that's part of having a globally integrated network. We can clear it we can move it we can deliver it in any country in the world, where you need us and as <unk>, United States increase uplift for outside of the United States right. So the power of the integration integrated network.

Brian Dykes: And as air volume comes down in the United States, it frees up lift for outside the United States. So the power of the integrated network is really helpful.

Speaker Change: It's really helpful.

Jason Seidel: Ever-Changing Environment. Appreciate the color and thanks for the time.

Speaker Change: And ever changing environment.

I appreciate the color and thanks for the time as always.

Speaker Change: <unk>.

Stephanie Moore: Thank you. Your next question is coming from Stephanie Moore from Jeffries. Your line is live. Hi, good morning. Thank you. Actually, maybe a continuation on that last question and conversation.

Speaker Change: Thank you. Your next question is coming from Stephanie more from Jefferies. Your line is live.

Stephanie Moore: Hi, Good morning, Thank you actually maybe a continuation on that last question in conversation and normally I would never assets at the end of April but.

Stephanie Moore: And normally, I would never ask this at the end of April, but, you know, maybe if you speak to your customers and they think about peak season, have you had any conversations with how they would look to prepare, especially in the light of, you know, kind of what we just discussed and the drawing down of inventory and taking a bit of a wait and see approach. But at some point, do we get to the point where there could be a bit of a squeeze here into the summer months as we start to prepare for kind of peak season shipments and what could still be a pretty disrupted supply chain environment.

Stephanie Moore: Maybe as you speak to your customers when they think about peak season have you had any conversations with how they would look to prepare especially in the light of kind of what we just discussed and the drawing down of inventory, taking a bit of a wait and see approach, but at some point do we get to the point, where there could be a bit of that.

Stephanie Moore: Squeeze here into the summer months as we start to prepare for kind of peak season shipments and what could still be a pretty disrupted supply chain environment. So any color there would be helpful. Thank you.

Stephanie Moore: So any color there would be helpful. Thank you.

Carol Tomei: I think your question is actually quite timely because most retailers would have to put orders in now. And so we are starting to talk to our customers to understand what their plans are. Remember, we deal with very large enterprise retailers who have the financial wherewithal to manage through tariffs. Smaller retailers, we've heard anecdotally that some of them are rethinking their peak holiday orders. But those are smaller retailers. For us, from an exposure perspective, I think we're in a pretty good position. But we will continue to have those ongoing discussions. given the uncertainty we have with the China tariff.

Stephanie Moore: I think your question is actually quite timely because most retailers would have to put orders in now for peak.

Stephanie Moore: And so we are starting to talk to our customers to understand what their plans are remember we deal with very large enterprise retailers, who have the financial wherewithal to manage through tariffs smaller retailers. We've heard anecdotally that some of them are rethinking their Christopher peak holiday orders, but those are smaller retailers for us from an explorer.

Stephanie Moore: Your perspective, I think we're in a pretty good place, but we will continue to have those ongoing discussions.

Stephanie Moore: Given the uncertainty we have with the China tariffs that's why it will be so helpful to have that resolved. However, it gets resolved, yes, Brian any color and 70, I think again that fits on uncertainty and scenarios right. Because there is a scenario where it gets resolved orders go in there is one where it gets delayed things move promotion to air that which is good for us right and we.

Brian Dykes: That's why it will be so helpful to have that resolved, however it gets resolved. Yeah.

Brian Dykes: Brian, any thoughts? And Stephanie, I think, again, this hits on uncertainty and scenarios, right? Because there's a scenario where it gets resolved, orders go in. There's one where it gets delayed. Things move from ocean to air, that's which is good for us, right? And we were able to flex our network to help people fulfill peak orders, right? There's others where it gets pushed even further and we see supply shock. So we're looking at all those different scenarios so we can move as quickly as we can and pivot the business.

Stephanie Moore: We're able to flex our network to help people fulfill peak orders right Theres, others, where it gets pushed even further and we see we see supply shop. So we're looking at all those different scenarios. So we can move as quickly as we can and pivot the business RP planning has already begun and right now it's about scenarios isn't it nando furbished or thinking about various scenarios on how we.

Nando Cesarone: Our peak planning has already begun. And right now it's about scenarios, isn't it, Nando? We're thinking about various scenarios and how we will be prepared to deliver another great peak. Yeah, it actually will work out in the end.

Stephanie Moore: We will be prepared to deliver another great peak, yes, it actually will work out in the end when you think about peak season, we put out a lot of variable cost. It's not cost that goes on forever in terms of hiring helpers temporary employees, we charter aircraft or lease aircraft. During peak season, those will be considerations, we make as we see the volume.

Brian Dykes: When you think about peak season, we put out a lot of variable costs. It's not a cost that goes on forever in terms of hiring helpers, temporary employees. We charter aircraft or lease aircraft during peak season. Those would be considerations we make as we see the volume unfold, whether we need those resources or not. Great.

Stephanie Moore: Unfold, whether we need those resources for them or not.

Stephanie Moore: Well, I appreciate the time. Thank you.

Stephanie Moore: Great well I appreciate the time. Thank you. Thank you.

Thank you. Your next question is coming from Brian <unk> from Jpmorgan. Your line is live.

Brian Ossenbeck: Your next question is coming from Brian Ossenbeck from J.P. Morgan. Your line is locked. Hey, good morning. Thanks for taking the question. So maybe just one follow-up and then the question on capital allocation. Just on the pivot to the China Plus One strategy, you know, how quickly do you think the supply chain can really do that, especially with some of the SMBs? And, you know, are you seeing a big offset there? Like you, I think Brian mentioned China to the rest of the world, but what about rest of the world to the U.S.?

Speaker Change: Hey, good morning, Thanks for taking the question maybe.

Speaker Change: Maybe just one follow up and then a question on capital allocation just on the pivot to the China plus one strategy how quickly do you think.

Speaker Change: Why change can really do that especially with some of them.

Speaker Change: Some of the Smbs.

Speaker Change: Are you seeing a big offset there like you think Brian mentioned, China to the rest of the world, but what about rest of the world to the U S. And then also for Brian can you just run us through our capital allocation priorities, maybe the cash cost for restructuring with this plan underway.

Kate Waddington-Steen: And then also for Brian, could you just run us through capital allocation priorities, maybe the cash cost for restructuring with this plan underway? Thank you. So rest of the world to U.S. Remember, 17% of our international revenue, 3% of our total. So, from an exposure perspective, this is manageable.

Speaker Change: Okay.

Speaker Change: So rest of the royalties to U S remember, 70% of our international revenue, 3% of our total revenue. So from an exposure perspective. This is a manageable exposure what are you seeing in rest of the royalty waiver. Yes. So we are seeing that we've got the growth out of Europe for instance to the U S and the exports growing.

Kate Waddington-Steen: Kate Waddington-Steen. Yes, so we are seeing that we've got the growth out of Europe, for instance, to the US in the exports growing very, you know, in a nice high digit single digit factor. We're seeing Asia, Vietnam, Thailand, also to the US growing exports near double digit. So I would tell you that it's shifting, it's already occurring. So to your point about the manufacturing and how fast, that's Carol's point about there's planning underway. The SMBs are looking at how they could source from manufacturing. The big companies get the first slot basically of these manufacturers. And the SMBs are working through where they would, how they would go to nearshoring.

Speaker Change: Very.

Speaker Change: Nice high digit single digit.

Speaker Change: Factor.

Speaker Change: Seeing Asia Vietnam.

Speaker Change: Thailand also to the U S growing exports near double digit.

Speaker Change: So I would tell you that its shifting it's already occurring so to your point about the manufacturing and how fast that's carols point about there's planning underway. The smbs are looking at how they could source from manufacturing the big companies get the first.

Speaker Change: Basically of these manufacturers and the Smbs are working through where they would how they would go to near shoring I Love the China plus analogy because this is basically the continuation of that of magnify. The world is shifting already and again double digit growth that I'm emphasizing is the proof points tied to that and I think it's important to.

Kate Waddington-Steen: I love the China Plus analogy because this is basically the continuation of that but magnified, the world is shifting already. And again, that's double-digit growth that I'm emphasizing is the proof of point tied to that. And I think it's important to remember rest of world is really a 10%... So if it's China, that's the real uncertainty I think facing the economy. rest of the world, 10% amount. That's right.

Speaker Change: Remember rest of World is really a 10% universal tariff so.

Speaker Change: China, that's the real uncertainty I think facing the economy is rest of world, 10% is a manageable area, that's right and just to just to put a tenant before I hit on capital structure.

Brian Dykes: And just to put a pin in before I hit on capital structure, you know, Kate mentioned the investments we've made before that really helped facilitate this, and we're continuing to do that with air expansions in Clark, in Taiwan, and continued investment in nearshoring. All these things are going to help us manage tariffs, not only today, but it gets better as we go into the future. So I think they all set us up for long-term benefit.

Speaker Change: Kate mentioned the investments we made before Theyre really helped facilitate that and we'll continue to do that with with air expansions inquire and Taiwan and continued investment in near shoring. All of these things are going to help us manage tariffs not only today, but they get better as we go into the future. So I think they all set us up for long term benefit hitting Brian on.

Brian Dykes: Hitting, Brian, on your point around capital allocation, no change to our capital allocation policies. So I think we feel very comfortable where the balance sheet is. We're at 2.26 times that EBITDA, which is below our 2.5% target. We closed the year with $5 billion in cash on balance sheet. None of our CP, our $3 billion program, is issued, so plenty of liquidity. So we feel very good about cash generation in the year coming, balance sheet strength and liquidity. On the charges associated with the restructuring plan, think about it as about 60% cash, 40% non-cash. But I will tell you, remember, that number is going to continue to be updated as we work through the year, and we work through, you know, additional assets that will be taken down, and when we roll into the first half of 26, and we take kind of the second tranche out.

Speaker Change: Your point around.

Speaker Change: Capital allocation no change to our capital allocation policies.

Speaker Change: So I think we feel very comfortable with where the balance sheet is we're at two six times debt to EBITDA, which is below our two 5% target we closed the year with $5 billion in cash on balance sheet.

Speaker Change: None of our $3 billion program is issued so plenty of liquidity. So we feel very good about cash generation in the year coming balance sheet strength and liquidity on the on the charges associated with the with the restructuring plan and think about it is about 60% cash 40% noncash.

Speaker Change: But I would tell you remember that number is going to continue to be updated as we work through the year.

Speaker Change: And we worked through.

Speaker Change: Additional assets that will will be will be taken down and when we roll into the first half of 'twenty six and we take kind of the second tranche out.

Matthew: Matthew we have time for one more question. Thanks for covering all that. Thank you. Certainly.

Matthew: Matthew we have time for one more question thanks for covering all of it.

Speaker Change: Thank you.

Bruce Chan: Our final question comes from Bruce Chan from Stiefel. Please go ahead with your question. Hey, good morning, everyone. And, you know, thanks for all the helpful color here.

Speaker Change: Certainly our final question comes from Bruce Chan from Stifel. Please go ahead with your question.

Bruce Chan: Hey, good morning, everyone.

Bruce Chan: For all the helpful color here, maybe just a broader question.

Bruce Chan: Maybe just a broader question, you know, if I, you know, not to be a negative Nancy, but, you know, if I start to think about potential recessionary scenarios, we've had periods of, you know, decelerating volumes and uncertain macro to look back to, but, you know, as far as I'm aware, never one where you've been undertaking such a big network realignment. Does that reduce your flexibility or optionality in terms of responding to lower macro demand, you know, maybe, for example, taking down Transpac flights or flexing labor down even more within the confines of your labor agreement?

Speaker Change: Not to be a negative Nancy, but if I start to think about the potential recessionary scenarios, we've had periods of decelerating volumes and uncertain macro to look back too, but as far as I'm aware and number one where you've been undertaking such a big network realignment.

Speaker Change: Does that reduce your flexibility or optionality in terms of responding to lower macro demand. Maybe for example take down transplant flights are flexing labor down even more within the confines of your labor agreements. Thank you.

Carol Tomei: Thank you.

Brian Dykes: I actually think we're adding more agility and nimbleness to our business than we ever have. If you think about the volume that we're gliding down from Transcripts provided by Transcription Outsourcing, LLC. being so dependent on that one customer for volunteering. So we are working through a number of scenarios, aren't we, Brian? We are. We're going as dark as we can and as optimistic as we can, and through all the scenarios, I've seen nothing but ways that we can manage through. That's right.

Speaker Change: I actually think we're adding more agility and nimbleness to our business than we ever have if you think about the volume that we're gliding down from Amazon.

Speaker Change: Yes.

Speaker Change: 60% of the volume that we're gliding down it's not profitable for like lighting that down we actually give ourselves financial flexibility to address other scenarios that might come our way. So while we have a lot to do to make this happen.

Speaker Change: Building in flexibility and agility that we've never had before being so dependent on that one customer.

Speaker Change: Volume and growth so.

Speaker Change: We are working through a number of scenarios are Brian we're going to as dark as we can and as optimistic as we can through all the scenarios I think nothing about ways that we can manage through that's alright that you'd like to add so and look we outline that we're going to be exiting 164 operations and 70 73 facilities by the end of June there is another approximate.

Brian Dykes: Something that you'd like to add. So, and look, we outlined that we're going to be exiting 164 operations and 73 facilities by the end of June. There's another approximately 50 that we're evaluating after that, and we'll continue to look at that. So I think it's important that, look, we're building a muscle here, and we're building a muscle that's going to allow us to flex the network in a new way that we've done before. The second piece is I would say as we consolidate to a more automated network, it gives us better efficiency with how we manage the volume to flex both up and down.

Speaker Change: The 50 that were evaluating after that and we'll continue to look at that so I think it's important that we are building a muscle here and we are building a muscle that's going to allow us to flex the network in a new way that we've done before the second piece is I would say as we as we consolidate to a more automated network. It gives us better efficiency.

Speaker Change: With how we manage the volume to flex both up and down.

Brian Dykes: And so we feel that even in those scenarios where the volume's got to come down even more, we're going to be in a more efficient network, and we've got the ability to go deeper on how we manage the cost in order to offset it.

Speaker Change: So we feel that even in those scenarios, where the volume comes down even more we're going to be in a more efficient network and we've got the ability to go deeper on how we manage the cost in order to offset it and just maybe one other thought one reason, we're so focused on healthcare complex healthcare is it as recessionary.

Carol Tomei: And just maybe one other thought. One reason we're so focused on healthcare, complex healthcare, is it is recessionary. And it's going to grow. So this differentiates us from just delivering a sweater in a box. It's complex logistics. It's the future of our company. So I were committed to continuing to make inorganic growth acquisitions like the Ann Lauer announcement, as well as the growth of core business, positioning UPS for the Great. Really helpful. Thank you.

Speaker Change: And it's been a ground. So this differentiate <unk> from just delivering a flatter in a box it's complex logistics, it's the future of our company. So we're committed to continuing to make inorganic growth acquisitions like the <unk> announcements as well as the grow the core business positioning UBS for the future.

Speaker Change: Great really helpful. Thank you.

Speaker Change: Thank you.

PJ Guido: I will now turn the floor back over to your host, Mr. PJ Guido. Thank you, Matthew.

P. J.: I will now turn the floor back over to your host Mr. P. J <unk>.

Speaker Change: Thank you Mathieu. This concludes our call. Thank you for joining and have a great day.

PJ Guido: This concludes our call. Thank you for joining and have a great day.