Q2 2025 United Parcel Service Inc Earnings Call

Unknown Executive: Thanks for watching.

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

PJ Guido: I'd like to welcome everyone to the UPS second 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 would like to ask a question, now is the time to press star then 1 on your telephone keypad.

Good morning. My name is Matthew and I'll be your facilitator today.

I'd like to welcome everyone to the UPS second quarter 2025 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period.

Any analysts that would like to ask a question, now is the time to press star, then 1 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.

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

Carol Tomé: Good morning and welcome to the UPS second quarter 2025 earnings call. Joining me today are Carol Tomé, 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. 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.

Good morning. And

To the UPS second.

2025.

Earnings call.

Dikes are CFO and a few additional members of our executive leadership team.

Before we begin, I want to remind you that some of the comments will make today are forward-looking statements and address our expectations for the future performance or operating results of our company.

Carol Tomé: Unless stated otherwise, our discussion refers to adjusted results. For the second quarter of 2025, GAAP results include a net charge of $29 million, or $0.04 per diluted share, comprised of after-tax transformation strategy costs of $57 million, which were partially offset by a $15 million gain from the divestiture of a business within supply chain solutions, and a $13 million benefit from the partial reversal of an income tax valuation allowance. A reconciliation of non-GAAP adjusted amounts to GAAP financial results is available in today's webcast materials. These materials are also available on the UPS Investor Relations website.

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.

Gain from the diversity of the business within Supply Chain Solutions, and a 13 million benefit from the partial reversal of an income tax valuation allowance.

A Reconciliation of non-gaap adjusted amounts to gaap. Financial results is available in today's webcast materials.

Carol Tomé: Following our prepared remarks, we will take questions from those joining us via the teleconference. If you wish to ask a question, press star and then one 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.

These materials are also available on the UPS investor relations website.

Following our prepared remarks, we will take questions from those joining us via the Telecom conference. If you wish to ask a question, press star and then 1 on your phone to enter the queue.

Carol Tomé: And now I'll turn the call over to Carol. Thank you, PJ. And good morning.

Please ask only 1 question so that we may allow as many as possible to participate. You may rejoin the queue for the opportunity to ask an additional question and now I'll turn the call over to Carol.

Carol Tomé: To begin, I want to thank all UPSers for their hard work and efforts, as we've made material progress against the strategic actions we laid out in January. Those actions include accelerating the glide down of Amazon volume, transitioning our ground saver product, and generating savings through our efficiency reimagined initiative. During the quarter, our team of dedicated UPSers remained focused on execution, while keeping supply chains moving and delivering best-in-class service. Our second quarter financial results reflect the impact of a complex macro environment driven by ever-evolving trade policies. as well as the significant actions we are taking to strengthen UPS's competitive and financial positioning.

Thank you, PJ and good morning to begin. I want to thank all upsers for their hard work and efforts as we've made material progress against the Strategic actions. We laid out in January,

Those actions include accelerating the Glide down of Amazon, volume transitioning. Our ground saver product and generating savings through our efficiency, re-imagined initiative.

during the quarter, our team of dedicated upsers remained focused on execution,

While keeping supply chains moving and delivering best-in-class service.

Our second quarter Financial results, reflect the impact of a complex macro environment driven by ever evolving trade policies.

As well as the significant actions. We are taking to strengthen UPS's competitive and financial positioning.

Carol Tomé: Looking at our second quarter results, consolidated revenue was $21.2 billion, consolidated operating profit was $1.9 billion, and consolidated operating margin was 8.8%.

Looking at our second quarter results.

Consolidated Revenue was 21.2 billion.

Consolidated operating profit was $1.9 billion, and consolidated operating margins were 8.8%.

Carol Tomé: As Brian will provide more detail regarding our financial results, I'd like to comment on what we are seeing from a business climate perspective, and then spend my time talking about the progress we are making on our strategic action. So first, our thoughts on the business climate. Despite uncertainties around trade policies, in the second quarter, the overall U.S. economy demonstrated continued resilience. But our sector, specifically the U.S. small package market, was unfavorably impacted by U.S. consumer sentiment that was near historic lows. A recent research report from McKenzie showed that in the face of tariffs and other uncertainties, consumers are trading down, while at the same time, splurging.

As Brian will provide more detail regarding our financial results.

I'd like to comment on what we are seeing from a business climate perspective and then spend my time talking about the progress. We are making on our strategic actions.

so, first, our thoughts on the business climate

Despite uncertainties around trade policies. In the second quarter, the overall US economy, demonstrated continued resilience,

But our sector, specifically, the U.S. small package market, was unfavorably impacted by U.S. consumer sentiment that was near historic lows.

A recent research report from McKenzie showed that in the face of tariffs and other uncertainties consumers are trading down.

Carol Tomé: For the first time in three years, consumer spending on discretionary categories like restaurants and automobiles outpaced growth in essential items. And on the commercial side of the economy, manufacturing activity in the U.S. remains soft. These macroeconomic dynamics impacted overall market demand, as well as demand by customer segment and product. In the quarter, our overall U.S. average daily volume declined by 7.3%, but due to our strategic actions, we saw a positive shift in the mix of business as revenue declined by just 0.8%.

while, at the same time, splurging,

for the first time in 3 years, consumer spending on discretionary categories, like restaurants and Automobiles outpaced growth and essential items

and on the commercial side of the economy, manufacturing activity in the US remains soft,

these macroeconomic Dynamics impacted overall market demand as well as Demand by customer segments and product.

In the quarter, our overall us average daily volume declined by 7.3%.

But due to our strategic actions, we saw a positive shift in the mix of business as revenue declined by just 0.8%.

Carol Tomé: Moving to the business climate outside of the US, trade follows policy, and generally tariffs are not good for trade. With the announcement of certain changes to trade policies in the second quarter, we saw that play out. For example, looking at our China to U.S. trade lane, an increased tariff and the elimination of de minimis exceptions resulted in a year-over-year drop in average daily volume of 34.8% for the months of May and June. Our China to U.S. trade lane is our most profitable trade lane, and the volume decline here pressured our international operating margins. But it's important to remember that with policy changes, trade doesn't stop, it moves.

Moving to the business climate outside of the US.

Trade follows policy and generally tariffs are not good for trade.

With the announcement of certain changes to trade policies. In the second quarter, we saw that play out.

for example, looking at our China tus trade Lane and increased tariff and the elimination of Dominus exceptions resulted in a year-over-year drop and average daily volume of 34.8% for the months of May and June

Are China to us trade Lane is our most profitable trade Lane, and the volume decline here. Pressured our International operating margin

Carol Tomé: Given our global integrated network, we are well positioned to service these moves. As an example, in the second quarter, we saw volume in our China to the rest of the world trade lanes increase by 22.4 percent. And we nearly doubled our capacity between India and Europe to meet the growing export demand on that trade line. Further, with the investments we've made in brokerage capabilities, in the second quarter, nearly 90% of all cross-border transactions were processed digitally. Given our proven trade expertise and vast global network, our customers are coming to us for solutions that will help them navigate tariff uncertainty.

But it's important to remember that with policy changes trade doesn't stop. It moves.

Given our Global Integrated Network, we are well positioned to service these moves.

In the second quarter, we saw volume in our China to the Rest of the World trade lanes increase by 22.4%.

And we nearly doubled our capacity between India and Europe to meet the growing export demand on that trade lane.

Further with the Investments we've made in brokerage capabilities in the second quarter, nearly 90% of all cross-border, transactions were processed digitally.

Carol Tomé: In fact, so far this year, we've engaged in over 600 supply chain mapping assessments to help customers visualize, evaluate, and optimize their global supply chains, including looking at opportunities for nearshoring.

Chase and back to Global Network. Our customers are coming to us for solutions that will help them navigate tariff uncertainty.

In fact, so far this year, we've engaged in over 600, supply chain, mapping assessments to help customers visualize evaluate, and optimize their Global Supply chains, including looking at opportunities for nearshoring

Carol Tomé: Speaking of nearshoring, last year we announced our plan to acquire Esteteta, a Mexican logistics company. Clearing regulatory and pre-closing conditions is turning out to be a slow process. But we continue to be bullish on the opportunity here. Growing our international small package business remains a strategic priority for us, and we see an opportunity for outpaced growth in this $99 billion addressable market. In our supply chain solutions business, global freight forwarding was also impacted by changes in trade policies, with revenue falling more than we expected. This softness was partially offset by solid growth in our digital and healthcare subsidiaries as we continue to build out those businesses.

Speaking of nearshoring last year, we announced our plan to acquire estaa, a Mexican logistics company.

Clearing regulatory and pre-closing conditions is turning out to be a slow process.

But we continue to be bullish on the opportunity here.

Growing, our International small package business, remains a strategic priority for us.

And we see an opportunity for outpaced growth in this $99 billion addressable market.

In our Supply Chain Solutions business, Global Freight forwarding was also impacted by changes. In trade policies with Revenue following more than we expected.

This softness was partially offset by solid growth in our digital and Healthcare subsidiaries as we continue to build out those businesses.

Carol Tomé: Now to an update on our strategic action. First, our Amazon GlideDown efforts are, for the most part, proceeding as planned. In concert with our network reconfiguration efforts, so far this year, we've closed 74 buildings. Each building had a closing checklist of over 1,000 steps, and I'm happy to report that the closures went smoothly with minimal issues. From a staffing perspective, our attrition rate was lower than we anticipated, which resulted in higher expense than we planned. From a part-time hourly position perspective, we believe most of this will correct over time.

Now to an update on our strategic action.

First our Amazon Glide down efforts are for the most part proceeding as planned.

In concert with our Network, reconfiguration efforts so far this year, we've closed, 74 buildings.

Each building had a closing checklist of over 1,000 steps.

And I'm happy to report that the closures went smoothly with minimal issues.

From a staffing perspective, our attrition rate was lower than we anticipated, which resulted in higher expense than we planned.

Carol Tomé: Further, we've announced a voluntary separation program for all full-time U.S. drivers. We've seen a lot of interest in the program so far, and participating drivers will leave UPS starting at the end of August.

From a part-time hourly position perspective, we believe most of this will correct over time.

Further, we've announced a voluntary separation program for all full-time. Us drivers.

We've seen a lot of interest in the program so far and participating drivers will leave UPS starting at the end of August.

Carol Tomé: Finally, while our plans are not completed, in concert with the Amazon volume decline, we will be closing more buildings and sorts during the back half of this year. As we told you last quarter, this year we expect to remove approximately $3.5 billion in expense from our base business. Part of this effort rests with our efficiency reimagined initiatives, which launched in the first quarter and accelerated in the second quarter. With efficiency reimagined, we are redesigning end-to-end processes to drive savings. like a new global payment strategy. Here, we've centralized how we make and receive payments under a digital first strategy, which will drive efficiency for UPS and improve the customer experience.

Finally will our plan to not completed in concert with the Amazon volume decline. We will be closing more buildings and sorts during the back half of this year,

as we told you last quarter this year, we expect to remove approximately 3.5 billion dollars in expense from our base business.

Part of this effort rests with our efficiency re-imagined initiatives, which launched in the first quarter and accelerated in the second quarter.

With efficiency reimagined, we are redesigning end-to-end processes to drive savings.

Like a new global payment strategy.

Here we've centralized how we make and receive payments under a digital first strategy.

Which will drive efficiency for UPS.

And improve the customer's experience.

Carol Tomé: Second, during the quarter, we took a hard look at our economy product we call Ground Saver. For UPS, we believe GroundSaver should be a product that complements an array of products used by our customers and not be a product just by itself. During the quarter, we took deliberate pricing actions to manage our ground saver volume. And as a result, the volume in this product declined by 23% year over year. A small portion of the volume decline was directly related to our Amazon GlideDown plant. and the rest was primarily related to volume declines from non-U.S. based e-commerce companies.

Second, during the quarter, we took a hard look at our economy product, we call Ground saver.

For UPS, We Believe ground Savers should be a product that complements an array of products used by our customers.

And not be a product just by itself.

During the quarter, we took deliberate pricing actions to manage our ground saver volume. And as a result, the volume in this product declined by 23% year-over-year.

As.

And the rest was primarily related to volume declines from non-U.S.-based e-commerce companies.

Carol Tomé: As you will recall, at the end of last year, we insourced from the USPS the last mile delivery of our GroundSaver product. This decision, while right for the customer experience, pressured our financial results as delivery expenses were somewhat higher than we anticipated. We are working on solutions to relieve this pressure in the back half of the year.

As you will recall, at the end of last year, we insourced from the USPS. The last mile delivery of our ground saver product.

This decision, while right for the customer experience, pressured our financial results as delivery expenses were somewhat higher than we anticipated.

We are working on solutions to relieve, this pressure in the back half of the year.

Carol Tomé: Before I wrap up, I want to touch on a positive in our business, and that's healthcare logistics. Healthcare logistics remains a key driver of growth for all three of our business segments. Complex healthcare logistics is an $82 billion addressable market, and we are laser focused on becoming the number one complex healthcare logistics provider in the world. To that end, we are leading radiopharma logistics globally, and in addition, lead U.S. integrators in terms of SEAD certified cold chain cross-stock buildings. Along with growing healthcare organically, we remain committed to inorganic growth, too, like with our previously announced planned acquisition of Adlauer Healthcare Group.

Before I wrap up, I want to touch on a positive in our business, and that's healthcare logistics.

Healthcare Logistics remains a key driver of growth for all 3 of our business segments.

Complex healthcare logistics is an $82 billion addressable market.

And we are laser focused on becoming the number 1 complex, Healthcare Logistics, provider in the world.

To that end. We are leading radio Pharma Logistics globally and in addition lead us integrators in terms of speed certified cold chain, cross talk building,

Carol Tomé: Anne Lauer supports our focus on complex healthcare and will enhance our coal chain and pharmaceutical transportation capabilities in the Canadian and U.S. markets. We expect this acquisition to close before the end of the year.

Along with growing Healthcare organically. We remain committed to inorganic growth, too. Like with our previously announced planned. Acquisition of antler Healthcare Group.

Care will enhance our call chain and pharmaceutical transportation capabilities in the Canadian and U.S. markets.

We expect this acquisition to close before the end of the year.

Carol Tomé: Now moving to our outlook. For our sector, this remains a very unsettling time. Changes in trade policy have not been cemented, and the impact on customer demand and the overall economy is unknown. While our customers who have scale may be able to thwart the impact of rising costs due to tariffs, Many of our S&B customers may not. Further, peak plans have not yet been submitted by our customers, which is an indication that they too are having difficulty in forecasting demand for the holiday selling season.

Now, moving to our Outlook.

For our sector. This remains a very unsettling time.

Changes in trade policy, have not been cemented and the impact on customer demand and the overall economy is unknown.

well, our customers who have scales may be able to thwart the impact of rising costs due to tariffs

Many of our SMB customers may not.

Further Peak plans have not yet been submitted by our customers.

Carol Tomé: Given that, we are not providing any forward-looking revenue or earnings guidance. But as Brian will detail, we are focusing on what is within our control, which is the Amazon Volume GlideDown Plan, the execution of our network reconfiguration, and ongoing efforts to drive productivity.

Which is an indication that they too are having difficulty in forecasting demand for the holiday selling season.

Given that we are not providing any forward-looking revenue or earnings guidance.

But as Brian will detail, we are focusing on what is within our control, which is the Amazon volume Glide Down plan. The execution of our Network reconfiguration and ongoing efforts to drive productivity.

Carol Tomé: As I wrap up, I want to touch on our financial position. UPS is rock solid strong, and so is our dividend. The UPS dividend is backed by solid free cash flow and a strong investment grade balance sheet. We know how important the dividend is to our investors, and you have our commitment to a stable and growing dividend.

As I wrap up, I want to touch on our financial position UPS is rock solid, strong and so is our dividend.

The UPS dividend is backed by solid free, cash flow and a strong investment grade balance sheet.

We know how important the dividend is to our investors.

And you have our commitment to a stable and growing dividend.

Carol Tomé: In closing, over the past five years, we've operated in a dynamic and complex world. Today's world is the same, complex and dynamic. But we would argue that the dynamics impacting today's marketplace are very different than the dynamics caused by the pandemic, or high inflation or labor disruptions or war. Changes in trade policies are impacting global trade and demand. It will likely all settle down at some point. But for now, it is a very volatile environment.

In closing over the past 5 years, we've operated in a dynamic and complex world.

Today’s world is the same: complex and dynamic.

But we would argue that the Dynamics, impacting today's Marketplace are very different than the Dynamics caused by that pandemic or high inflation, or labor, disruptions or War.

Changes in trade, policies are impacting global trade and demand.

Carol Tomé: But we're not letting this knock us off our strategic plan. At UPS, we are proactively taking action to put our company on a much stronger footing and position our company well for the future. We are focused on serving our customers, growing into more complex and economically attractive parts of the market, and creating value for our shareholders. Our founder Jim Casey said, our horizon is as distant as our mind's eye wishes it to be. We've got our eyes on the future.

It will likely all settle down at some point. But for now, it is a very volatile environment.

But we're not letting this knock us off our strategic plan.

At UPS, we are proactively taking action to put our company on a much stronger, footing and position our company well for the future.

We are focused on serving our customers growing in a more complex and economically attractive parts of the market and creating value for our share owners.

our founder, Jim Casey said,

Our Horizon is as distant as our minds eye, which is it to be.

We've got our eyes on the future.

Carol Tomé: So with that, thank you for listening.

Brian Dykes: And now I'll turn the call over to Brian. Thank you, Carol. And good morning, everyone. This morning, I'll cover three areas. starting with our second quarter results. Then I'll discuss progress with the Amazon Volume GlideDown, our network reconfiguration efforts, and our Efficiency Reimagined Initiative. Lastly, I'll comment on our capital allocation priorities for the year. Moving to our results. Starting with our consolidated performance, in the second quarter revenue was $21.2 billion, and operating profit was $1.9 billion. Consolidated operating margin was 8.8%. Diluted earnings per share were $1.55. Now moving to our segment performance and starting with U.S.

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

Thank you, Carol, and good morning everyone. This morning, I'll cover 3 areas

starting with our second quarter results.

Then I'll discuss progress with the Amazon volume Glide down, our Network, reconfiguration efforts and our efficiency reimagine initiative. Lastly I'll comment on our Capital allocation priorities for the year.

Moving to our results.

Starting with our Consolidated performance. And the second quarter Revenue was 21.2 billion and operating profit was 1.9 billion Consolidated. Operating margin was 8.8%.

Diluted earnings per share were $1.55.

Brian Dykes: Domestic. Through our Amazon volume glide down strategy, we are shifting the mix of our U.S. business. We are laser focused on improving revenue quality and the changes we are making are beginning to show up in our results. For the quarter, total U.S. average daily volume was down 7.3 percent, primarily driven by our planned glide down of Amazon volume and revenue quality efforts. Total air average daily volume was down 11.6%. When excluding Amazon, Total Air ADB increased 1.4% driven by healthcare and high-tech customers. Ground average daily volume was down 6.6% year over year, and within ground, ground saver ADV declined 23.3%, primarily due to the pricing actions we took on e-commerce volume.

Now, moving to our segment performance, and starting with U.S. domestic.

Through our Amazon volume Glide down strategy. We are shifting the mix of our us business. We are laser focused on improving Revenue quality and the changes. We are making are beginning to show up in our results.

For the quarter total us. Average daily volume was down 7.3% primarily driven by our planned. Glide down of Amazon volume, and revenue, quality efforts.

Total are average. Daily volume was down, 11.6%.

When excluding Amazon total air ADV increased, 1.4% driven by Healthcare and high-tech customers.

Brian Dykes: In the second quarter, GroundSaver made up the smallest portion of our total ground volume that we've seen in two years. This shift is a proof point showing positive product makes improvements. In terms of customer mix, ADV growth within our small and medium sized customers was lower than we anticipated. Year over year, the S&B growth rate was flat. However, we saw some bright spots in S&B healthcare, manufacturing, and automotive. In the second quarter, S&Bs made up 32% of total U.S. volume, a 230 basis point improvement compared to last year. Looking at enterprise customers, excluding Amazon, average daily volume was down 10.4% versus last year due to a combination of our revenue quality actions and overall softness in the market.

Ground average, daily volume was down 6.6% year-over-year and within ground ground saber 80v declined. 23.3%, primarily due to the pricing actions we took on e-commerce volume

In the second quarter, Ground Saver made up the smallest portion of our total ground volume that we've seen in two years. This shift is approved point, showing positive product makes improvements.

in terms of customer mix.

80V growth within our small and medium-sized customers was lower than we anticipated.

Year-over-year, the SMB growth rate was flat. However, we saw some bright spots in SMB, Healthcare manufacturing, and Automotive

In the second quarter, SMBs accounted for 32% of total U.S. volume, representing a 230 basis point improvement compared to last year.

Looking at Enterprise customers excluding Amazon, average daily volume was down 10.4% versus last year, due to a combination of our Revenue, quality actions, and overall softness in the market.

Brian Dykes: For the quarter, B2B average daily volume finished down 2.3% compared to last year due to softness in manufacturing activity. B2C average daily volume was down 10.9% year-over-year, primarily due to the actions we took to improve revenue quality. B2B represented 43.7% of our U.S. volume, which was a 220 basis point improvement versus last year. Moving to revenue. For the second quarter, U.S. domestic generated revenue of $14.1 billion, which was down slightly to last year, mainly due to the decline in Amazon revenue, which was partially offset by increases in air cargo and revenue per In the second quarter, revenue per piece increased 5.5% year-over-year, breaking down the components of the 5.5% revenue-per-piece improvement.

Activity.

B2C average daily volume was down 10.9% year-over-year, primarily due to the actions we took to improve revenue quality. B2B represented 43.7% of our U.S. volume, which was a 220 basis point improvement versus last year.

Moving to revenue for the second quarter us domestic generated revenue of 14.1 billion which was down slightly the last year mainly due to the decline in Amazon Revenue, which was partially offset by increases in Air Cargo and revenue per piece.

And the second quarter revenue for UPS increased 5.5% year-over-year.

Brian Dykes: The net impact of base rates and package characteristics increase the revenue-for-fees growth rate by 250 basis points. Customer and product mix improvements increase the revenue per piece growth rate by 200 basis points. Lastly, fuel drove a 100 basis point increase in the revenue per piece growth rate. Turning to costs, total expense in the second quarter was flat compared to last year, including an increase in air cargo. Looking at cost per piece, it increased 5.6%. This was primarily due to the short-term pressure we experienced from some of our ground saver volume, as well as the timing of employee attrition associated with our network reconfiguration.

In the components of the 5.5% Revenue per piece Improvement.

The net impact of Base rates and packaged characteristics. Increase the revenue for peace growth rate by 250 basis points.

Customer and product makes improvements increase. The revenue per piece growth rate by 200 basis points.

Lastly, fuel drove a 100 basis. Point increase in the revenue per piece growth rate,

Turning to costs total expense in the second quarter was flat compared to last year, including an increase in air cargo.

Brian Dykes: The U.S. domestic segment delivered $982 million in operating profit, an operating margin was 7%.

Looking at costs for peace, it increased 5.6%, this was primarily due to the short-term pressure. We experience from some of our ground saver volume, as well as the timing of employee attrition associated with our Network reconfiguration

The US domestic segment, delivered 982 million in operating profit and operating margin was 7%.

Brian Dykes: Moving to our international segment. As Carol mentioned, the trade patterns we anticipated played out about as we expected, but the magnitudes were different, particularly in May when the tariff changes and the de minimis exclusion for products from China took effect. In the second quarter, total international ADV increased 3.9% with all regions growing average daily volume versus last year. International domestic average daily volume increased 1.5% compared to last year, led by Canada. On the export side, average daily volume increased 6.1% year over year.

Moving to our International segment.

as Carol mentioned, the trade patterns, we anticipated played out about as we expected, but the magnitudes were different

particularly in May, when the Tariff changes in the Dominus exclusion for products, from China took effect,

In the second quarter, total International advanced 3.9% with all regions, growing average daily volume versus last year.

International domestic average daily volume increased 1.5% compared to last year led by Canada.

Brian Dykes: U.S. trade policy changes during the quarter resulted in a 34.8 percent decline on our China to U.S. lane in May and June, which was higher than we expected. Partially offsetting this decline, in the second quarter we saw growth of over 20% out of China to the rest of the world.

On the export side, average daily volume increased 6.1% year-over-year.

As trade policy changes during the quarter resulted in, a 34.8% decline on our China, the US Lane and May and June, which was higher than we expected.

Partially offsetting this Decline and the second quarter we saw growth of over, 20% out of China to the rest of the world.

Brian Dykes: At UPS, we run our global network with agility. This allows us to pivot into areas of opportunity and reduce costs in areas under pressure. With service in over 200 countries, we are where our customers need us to be. During the second quarter, we made over 100 adjustments to add or cancel flights in our Asia, Europe, and U.S. international lanes as our customers responded to changing tariffs and adjusted their supply chains. Turning to revenue, in the second quarter, international revenue was $4.5 billion, up 2.6% from last year. Revenue per piece declined year-over-year due to geography mix and lower demand-related surcharges.

At UPS, we run our Global Network with agility. This allows us to Pivot in the areas of opportunity and reduce costs in areas under pressure.

With service in over 200 countries, we are where our customers need us to be. During the second quarter, we made over 100 adjustments to add or cancel flights in our Asia, Europe, and US International lanes as our customers responded to changing tariffs and adjusted their supply chains.

Turning to revenue, International Revenue for the second quarter was $4.5 billion, up 2.6% from last year.

Revenue per piece, declined year-over-year due to geography mix and lower demand related, search charges

Brian Dykes: Operating profit in the international segment was $682 million, down $142 million year over year, reflecting pressure from trade lane shifts, product trade down, lower demand related surcharges, and the investments we are making to expand weekend services in Europe. International Operating Margin in the second quarter was 15.2%.

Operating profit in the international segment with 682 million down 142 million a year over year reflecting pressure from trade Lane, shifts product trade down.

Lower demand related search charges and the investments we are making to expand weekend services in Europe.

International operating margin in the second quarter was 15.2%.

Brian Dykes: Moving to Supply Chain Solution. In the second quarter, revenue was $2.7 billion, lower than last year by $594 million. 90% of the decrease in revenue was due to our divestiture of Coyote in the third quarter of 2024.

Moving to Supply Chain Solutions.

In the second quarter Revenue was 2.7 billion lower than last year, by 594 million.

90% of the decrease in Revenue was due to our destitute of coyote in the third quarter of 2024.

Brian Dykes: Within Supply Chain Solutions, air and ocean forwarding revenue was down year over year. The decline in the air and ocean freight was driven by changes in tariffs resulting in demand softness and lower market rates.

Brian Dykes: Healthcare Logistics grew revenue by 5.7% and UPS Digital, including Rody and Happy Returns, grew revenue 26.4% year-over-year. Lastly, in the second quarter, we adjusted our process for how we handle volume and mail innovation, improving the profitability of this business. In the second quarter, Supply Chain Solutions generated operating profit of $212 million, operating margin was 8%.

Within Supply Chain Solutions, air and ocean forwarding revenue was down year-over-year. The decline in air and ocean freight was driven by changes in tariffs, resulting in demand softness and lower market rates.

Healthcare Logistics grew revenue by 5.7%, and UPS Digital, including ROI and Happy Returns, grew revenue 26.4% year-over-year.

Lastly, in the second quarter, we adjusted our process for how we handle volume and mail innovations.

And improving the profitability of this business.

In the second quarter, Supply Chain Solutions generated an operating profit of $212 million, with an operating margin of 8%.

Brian Dykes: Turning to cash and sharing a return. Year-to-date, we've generated $2.7 billion in cash from operations and free cash flow with $742 million. In the second quarter, we made voluntary pension contributions, accelerated investments related to our network reconfiguration, and experienced temporary working capital pressure primarily due to changes in tariffs. We expect these will normalize in the second half of the year. We finished the quarter with strong liquidity and no outstanding commercial paper. And so far this year, UPS has paid $2.7 billion in dividends.

Turning to cash and sharing a returns.

Year to date. We generated 2.7 billion dollars in cash from operations and free cash flow with 742 million.

And the second quarter we made voluntary pinching contributions accelerated Investments related to our Network reconfiguration and experience temporary working. Capital pressure primarily due to changes in Terror

we expect these will normalize in the second half of the year.

We finish the quarter with strong liquidity and no outstanding commercial paper.

And so far this year, UPS has paid $2.7 billion in dividends.

Brian Dykes: Now let me provide an update on our cost out and network reconfiguration effort. Related to our Amazon volume reduction actions, we are removing approximately $3.5 billion in costs this year, while undertaking the largest network reconfiguration in our history. On our last earnings call, we shared a tracker to help you see our savings progress. Here, we grouped the associated cost savings into three buckets. Variable costs which primarily captures operational hours, semi-variable costs which reflects operational positions, and fixed costs which includes closing buildings and reducing expense from support functions through our efficiency reimagined initiatives. Amazon's average daily volume rate of decline in the second quarter was a little lower than we expected, which followed the first quarter where their ADV rate of decline was higher than we expected.

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

Amazon volume reduction actions. We are removing approximately 3.5 billion in cost this year while undertaking the largest Network reconfiguration in our history.

On our last earnings call, we shared a Tracker to help you see our savings progress.

Here, we've grouped the associated cost savings into three buckets.

Variable costs, which primarily capture operational hours.

Semi-variable costs, which reflects operational positions.

And fixed costs, which includes closing buildings and reducing expense from sport, functions through our efficiency reimagined initiative.

Amazon's average daily volume rate of decline in the second quarter was a little lower than we expected, which followed the first quarter where the rate of decline was higher than we expected.

Brian Dykes: When looking at the first six months of 2025, Amazon's ADV declined 13% compared to last year. Now that we are in the second half of the year, we expect to accelerate the pace of Amazon volume decline to approximately 30% year-over-year in each of the third and fourth quarters.

When looking at the first 6 months of 2025, Amazon's 80b declined, 13% compared to last year.

Now that we are in the second half of the year, we expect to accelerate the pace of Amazon volume decline to approximately 30% year-over-year in each of the third and fourth quarters.

Brian Dykes: Now let's look at the progress with our network reconfiguration and efforts to remove expense associated with the Amazon volume decline. Starting with variable costs, total operational hours paced down with volume in the first half of the year, and we are on track to reach our reduction target of approximately 25 million hours this year. Moving to semi-variable costs, year-to-date operational positions have been reduced by nearly 9,500. As Carol mentioned, our attrition rate was lower than we anticipated. In terms of part-timers, we expect the attrition rate to synchronize over time. For full-timers, we recently announced a voluntary separation program for all U.S.

Now, let's look at the progress with our network, reconfiguration, and efforts to remove expenses associated with the Amazon volume decline.

Starting with variable costs, total operational hours pace down with volume in the first half of the year, and we are on track to reach our reduction target of approximately 25 million hours this year.

Moving to semi variable cost year to date operational positions have been reduced by nearly 9,500. As Carol mentioned, our attrition rate was lower than we anticipated in terms of part-timers, we expect the attrition rate to synchronize over time.

Brian Dykes: drivers. And one week into the offer, we are seeing a level of interest that's in line with our expectations. And in our fixed-cost bucket, year-to-date, we've completed the closure of 155 operations, including closing 74 buildings. We continue to evaluate the network and the impact of the Amazon volume decline and expect to close additional buildings and operations in the back half of 2025. And while we've been right-sizing the network, we've also deployed additional automation to continue to drive efficiency. Lastly, as Carol mentioned, savings from our efficiency reimagined initiative accelerated in the second quarter. Putting it all together, we remain on track to achieve our 2025 expense reduction target of about $3.5 billion.

For full-timers, we recently announced the voluntary separation program for all U.S. drivers and one weekend of the offer. We are seeing a level of interest that's in line with our expectations.

And then our fixed cost bucket year to date. We've completed the closure of 155 operations, including closing, 74 buildings.

We continue to evaluate the network and the impact of the Amazon volume decline and expect to close additional buildings and operations in the back half of 2025.

And while we've been right-sizing the network, we've also deployed additional automation to continue to drive efficiency.

Lastly, as Carol mentioned savings from our efficiency reimagine initiative, accelerated in the second quarter.

Brian Dykes: Partially offsetting this reduction is the higher than expected ground saver delivery.

Putting it all together, we remain on track to achieve our 2025 expense reduction targets of about $3.5 billion.

Partially offsetting this reduction is the higher-than-expected ground saver delivery expense.

Brian Dykes: Moving to the rest of 2025. There's a lot of uncertainty right now due to tariff and trade changes and the potential impacts on consumer behavior is unknown. Because of this, we see a risk for greater variability in SMB and enterprise volume. Additionally, in the U.S., while we are confident in the strategic changes we are making with our network reconfiguration and revenue quality focus, two impactful changes remain uncertain. First, the timing with implementing ground saver solutions is pending. and second is the full impact of the Driver Voluntary Separation Program and related take-rate and departure dates.

Moving to the rest of 2025, there's a lot of uncertainty right now, due to tariff and trade changes, and the potential impacts on consumer behavior is unknown.

Because of this, we see a risk for greater variability in SMB and Enterprise volume.

Additionally, in the us while we are confident in the Strategic changes, we are making with our Network reconfiguration and revenue, quality Focus 2, impactful changes remain uncertain.

first, the timing with implementing ground saver Solutions is pending

And second is the full impact of the driver voluntary. Separation program and related take rate and departure dates.

Brian Dykes: For all these reasons, we are not providing any forward-looking revenue or operating profit guidance. Our expectation is that there will be more certainty at the end of the third quarter and we will have a better read on peak and the timing and scale of these initiatives.

For all these reasons, we are not providing any forward-looking revenue or operating profit guidance.

Our expectation is that there will be more certainty at the end of the third quarter. And we will have a better read on Peak and the timing and scale of these initiatives.

Brian Dykes: We are, however, confirming our 2025 capital allocation expectations. We expect capital expenditures to be approximately $3.5 billion.

We are however confirming our 2025 Capital, allocation expectations.

Brian Dykes: We are planning to pay out around $5.5 billion in dividends subject to board approval. And we have completed the targeted repurchase of about $1 billion of our shares. Lastly, we expect the tax rate to be approximately 23.5% for the full year 2025.

We expect Capital expenditures to be approximately 3.5 billion dollars. We are planning to pay out around 5.5 billion dollars. In dividends subject to board approval and we have completed. The targeted repurchase of about 1 billion dollars of our shares.

Lastly, we expect the tax rate to be approximately 23.5% for the full year 2025

Unknown Executive: So with that, operator, please open the lines for questions. Thank you.

So with that operator, please open the lines for questions.

Unknown Executive: We will now conduct a question and answer session. If you have any questions or comments, please press star then 1 on your phone.

Justine Weiss: Our first question comes from the line of David Vernon of Bernstein. Sir, please go ahead with your question. Hi, everyone. Thanks for taking the question. This is Justine Weiss speaking on behalf of David Vernon.

Thank you. We will now conduct a question-and-answer session. If you have any questions or comments, please press star, then 1 on your phone.

Our first question comes from the line of David Vernon of Bernstein.

Sir, please go ahead with your question.

Brian Dykes: So I'm just wondering, is the lack of guidance in some ways a sign that things are worse? Or is this purely about things still being uncertain? And also, how do you feel about progress on cost cuts being enough to exit with domestic margins at double Well, Dusty, thanks for your call and question.

Hi everyone. Thanks for taking the question. This is Justine Wise, speaking on behalf of David Vernon. So, I'm just wondering, is the lack of guidance in some ways a sign that things are worse, or is this purely about things still being uncertain? And also, how do you feel about progress on cost cuts being enough to exit with domestic margins at double digits?

Brian Dykes: And I'll start with the rationalization for not providing guidance. First, we debated this a lot. But there's so much uncertainty out there. We are building scenarios and the range of the scenarios, well, it's wide enough to drive one of our 18 wheelers through. So we elected not to provide guidance. And let me let me tell you why. First, if I look at the volume in July, it's actually a bit better than what we've been seeing. But part of that in the United States and when anyway, was influenced by Amazon Prime Day and other retailers who had similar like promotions.

Well Justin, thanks for your call and question and I'll start with the rationalization for not providing guidance first we debated this a lot but there's so much uncertainty out there. We are building scenarios and the range of the scenarios. Well it's wide enough to drive 1 of our 18 wheelers through. So we elected not to provide guidance. And let me, let me tell you why. First is I look at the volume in July, it's actually a bit better than what we've been seeing.

Brian Dykes: And so we're not sure that the volume in July is an indicator of the volume for the rest of the quarter. Further, the volume outside the United States was strong too. But we we believe that's because companies were purchasing inventory ahead of the August 1st, first tariff. So July, while good, we don't think is a predictor necessarily of the rest of the quarter. Why? Because of the uncertainty. As we look at the tariffs, there are a number of tariffs that are slated to go in on August 1st. We don't know if that's going to happen or not.

Retailers who had similar like promotions. And so we're not sure that the volume in July is an indicator of the volume for the rest of the quarter. Further the volume outside, the United States was strong too. But we, we, we believe that's because companies were purchasing inventory ahead of the August 1st first, uh, tariffs.

Brian Dykes: There only have been six trade deals that have been negotiated. So there's a lot of uncertainty regarding the tariffs. As it relates to the China tariff, that agreement expires on August 12th. Now, it's rumored that that will be extended, but we don't know. And so there's uncertainty around tariffs, and then there means there's uncertainty around consumer demand. So consider this. At the end of the first quarter, you know, our customers had inventory, and they sold that inventory down in the second quarter. They're now at a point where they need to replenish their inventories. And if you're an SMB customer sourcing from China alone, you could see that your cost could increase by 55%.

So July while good, we don't think it's a predictor necessarily of the rest of the quarter. Why? Because of the uncertainty um as we look at the tariffs, there are a number of tariffs that are slated to go in on August 1st. We don't know if that's going to happen or not. Their only have been 6, uh, trade deals that have been negotiated. So there's a lot of uncertainty regarding uh, the tariffs as it relates to the the China tariffs. Um, that agreement expires on August 12th. Now it's rumored that, that will be extended but we don't know.

And so there's uncertainty around tariffs and then their means there's uncertainty around consumer demand, so consider this at the end of the first quarter, you know, our customers had inventory and they sold that inventory down in the second quarter. They're now at a point where they need to replenish their inventories and if you're an SMB customer

Sourcing from China alone.

Brian Dykes: So as we recorded, our SMB volume was flat year on year, and we just think there might be some risk to SMBs in the third quarter. We just don't know.

Brian Dykes: Finally, we don't have peak plans yet. And so all these things make the range of revenue for the third quarter very low. Now, on the expense side, I'm certainly pleased with the progress our team is making in terms of delivering the $3.5 billion in cost out that we laid out at the beginning of the year, so I'm very pleased with that. But there are a couple of things that we have to work on. First, the attrition related to our Amazon guide down was not as high as we expected it to be. What we're seeing is that the longer a building is closed, the higher the attrition rate.

You can see that your costs could increase by 55%. So as you as you as we uh, recorded our S&B volume was flat year on year and we we just think there might be some risk to s&p's in the third quarter. We just don't know.

Finally, we don't have peak plans yet. Um, and so, all these things make this range of revenue for the third quarter very wide.

Brian Dykes: The majority of the closures that occurred in the second quarter were back and waited, so we expect the attrition to get higher as time progresses. So this should take care of itself from a part-time hourly perspective. And to address the full-time driver roles, we've offered this voluntary buyout. We don't know the takeout yet. We don't know then the cost associated with that takeout or the benefit associated with that takeout, so that's to be seen.

Now, on the expense side, I'm certainly pleased with the progress. Our team is making in terms of of delivering the 3.5 billion dollars in cost out that we laid out at the, at the beginning of the year. So I'm I'm, I'm very pleased with that. But there are a couple of things that we have to work on first, the attrition, um, related to our Amazon guidelines. Uh, guide guide down was not as high as we expected it to be. What we're seeing is that the longer a building is closed the higher, the attrition rate

Brian Dykes: And finally, on GroundSaver, while we're pleased with the customer experience that we have been providing with GroundSaver, the algorithm that we modeled for delivery density didn't hold true in the second quarter, and as a result, we had more delivery stops than we had attrition. We're working through that algorithm, but we have also reengaged with the USPS. There's new leadership there, we have excess capacity, so we're working through a number of different solutions on GroundSaver. We don't know the outcome of that yet, but we expect to know that hopefully in the quarter.

The majority of the closures that occurred in the second quarter were back in weighted, so we expect the attrition to get higher as time progresses. So this should take care of itself from a part-time hourly perspective and to address the uh, full-time driver roles we've um offered this voluntary buyout, we don't know the takeout yet, we don't know. Then the cost associated with that, take out of the benefit associated with that, I got take out. So that's to be seen and finally, on ground saver.

Well, we're we're pleased with that customer experience that we have been providing with ground saver.

The the algorithm that we modeled um for delivery density uh didn't hold true in the second quarter and as a result we had more delivery stops than we had anticipated.

We're working through that algorithm but we have also, uh, re-engaged with the USPS.

Brian Dykes: So at the end of all of this, by the end of the third quarter, we think we'll have more certainty on tariffs, we think we'll have more certainty on peak, we think we'll have more certainty on costs, so that we can come back and give guidance for the fourth quarter.

Brian Dykes: Now with all that being said, Brian, maybe you could kind of give some shaping for the third quarter, just to help people with their loss. Yeah, thanks, thanks, Cheryl, and I think Carol hit on all the right points, right? So volume remains depressed right now, right, and there's the possibility, particularly with our retail and S&B customers, that it could get better, it could get a little bit worse as we go in. And we're dealing with the lower attrition and higher GroundSaver costs as we've got.

Brian Dykes: So as you think about Q3 margins, they could be pressured a little more than we thought earlier in the year, even more than the kind of normal seasonality that we have from Q2 to Q3. International and FDS, I mean, you see in the performance, things are holding pretty well. We expect those to be about the same, and we're going to get clarity as we go through the quarter on this, right? What we can say, look, is we've got a high degree of confidence, and I think it's starting to show in the results that the actions that we're taking are setting ourselves up for the longer term, right?

There's new leadership there. They have excess capacity. So we're working through a number of different solutions on ground saver. We don't know the outcome of that yet. Uh, but we expect to know that hopefully in the quarter. So at the end of all of this, by the end of the third quarter, we think we'll have more certainty on, um, tariffs. We think we'll have more certainty on Peak. We think we'll have more certainty on cost so that we can come back and give give guidance, uh, for the fourth quarter now. With all that being said, Brian, maybe you could kind of give some shaping for the third quarter, just to help people with their loss. Yeah, thanks. Thanks Sharon. And I, and I think, uh, Carol hit on on all the right points. Right? So, so volume remains depressed right now, right? And there's the possibility, particularly with our retail, and SMB customers. That book. It could get better. It could could get a little bit worse as we as we go in um and we're dealing with those higher, the lower attrition and Higher Ground saver costs as we've got. So if you think about Q Q3 margins they could be pressured a little more than we thought um earlier in the year um even more than than the kind of normal.

Seasonality that we have.

Brian Dykes: The rep for peace is turning, the growth in international is positive, and this is going to put us in a much better competitive position, not only to drive growth in the future, but expand margins.

Sent you to to Q3 International and FCS. I mean you you see in the performance things are are are holding pretty well though they do. We expect those to be about the same and and we're going to get clarity as we go through the quarter on this, right? What we what we can say look is we've got a high degree of confidence and I think it's starting to show in the results that the actions that we're taking are setting ourselves up for the longer term, right? The rep for piece is turning the the growth in international is is positive and this is going to put us in a in a much more, a much better competitive position not only to direct growth in the future but expand margin

Unknown Executive: All really helpful. So it sounds like basically exiting domestic margins at double digits is just a bit uncertain. We'll have more certainty by the end of the third quarter.

Um all really helpful so it sounds like basically exiting domestic margins at double digits is just a bit uncertain right now.

We'll have more certainty by the end of the third quarter.

Unknown Executive: Great, thank you so much. Thank you.

Great, thank you so much.

Ben Moore: Our next question comes to the line of Ariel Rosa of Citigroup. Please go ahead with your question. Hi, good morning.

Question.

Ben Moore: This is Ben Moore of Citi, on for Ariel Rosa. Thanks for taking our question. At this rate of the China to U.S.

Unknown Executive: parcel lane shifts to the rest of Southeast Asia, like Vietnam or Thailand to the U.S., when do you expect to fully lap those costs on the trade lane shifts? And with your total investments in infrastructure in the rest of Southeast Asia as it stands, is there enough excess capacity to handle these shifts? Or will you need to make additional infrastructure investments into Southeast Asia in order to handle these?

Hi, good morning. Uh, this is Ben Moore of City on, for Ari, Rosa, thanks for taking our question, uh, at this rate of the China to us parcel Lane shifts to the rest of Southeast Asia, like, Vietnam, or Thailand to the US. When do you expect to fully lap those costs on the trade Lane shifts and with your total Investments and infrastructure in the rest of Southeast Asia. As it stands, is there enough excess capacity to handle these ships or will you need to make additional infrastructure investments into southeast Asia in order to handle these shifts?

Unknown Executive: Well, we're really pleased with how our integrated network is meeting the demands of our customers. And Kate, why don't you give some color? Yeah, absolutely. So I think you may recall we engaged with tens of thousands of customers to see how we could help them with supply chain shifts. Some of them were able to move faster than others. Some are waiting for the outcome of the tariff. But that said, we've unlocked the growth of rest of world to rest of world. Now, the China to U.S., as we indicated, was down, and then the China rest of world is up.

Well, we're really pleased with how our Integrated Network is meeting the demands of our customers and hey, why don't you give some color? Yeah, absolutely. So I think you may recall we uh, engaged with uh tens of thousands of customers to see how we could help them with supply chain shifts.

Unknown Executive: We have shown agility. And to the question on capacity, we are shifting our resources around, and we do it very quickly so that we can capture that growth. In terms of investments, we actually were building out an Asia diversity strategy for the last few years. And with that, we actually were seeing, call it 10% type growth that we're unlocking. So it's not a cost. It's actually alignment of resources now to the increased trade lane flow outside of the U.S. So we are capturing that. China, again, rest of world, over 20%. You mentioned Southeast Asia, Malaysia, Vietnam, all growing over 20%.

Some of them were able to move faster than others. Some are waiting for the outcome of the tariffs, but that said, we've unlocked the growth of rest of the world to rest of the world. Now the China to us as uh, we indicated was down and then the China, rest of the world is up. We, we have shown agility and, uh, to the question on capacity, we are shifting our resources around and we do it, uh, very quickly so that we can capture that growth. Um, in terms of Investments, we actually were building out an Asia diversity strategy for the last uh, last few years. And with that, we actually

Unknown Executive: We've doubled India. So we are seeing that UPS's global integrated network is capturing that growth. Now, as we deal with the revenue per piece changes, so again, it's not the cost side as much as the revenue per piece. We are unlocking that profitable growth, and we will be harnessing more of it as the Indias get stronger. You'll see a heavier weighting, and that, too, is profitable to offset at China.

We're seeing a call at 10% type growth that were unlocking. So it's not a cost. Uh, it's actually alignment of resources. Now to be increased trade Lane, uh, flow outside of the us. So we are capturing that uh, China again. Rest of world over 20%, you mentioned southeast Asia. Malaysia Vietnam all growing over 20%, we've doubled India. So we are seeing that uh UPS is global Integrated Network is capturing that growth. Uh, now as we deal with the revenue for peace changes. So again, it's not the cost side as much as the revenue per piece.

Unknown Executive: And maybe just a couple of other comments about investments, because to Kate's point, we got ahead of this. We are expanding our air hub in Hong Kong. We are building a brand-new air hub in the Philippines, and that positions us very well for these changing shifts in trade lanes.

Unknown Executive: I think it's important to remember that of the 80 largest trade lanes in the world, 49 have an Asian country on one end of the trade lane, and 22 have an Asian country on both ends of the trade lane. So the investments that we laid out several years ago now, we'll be able to capitalize on these shifting trade lanes.

We are unlocking that profitable growth and we, we will, uh, be harnessing more of it, as the India's get stronger. You'll see a heavier weighting in that too. Is uh, profitable to offset a a China and maybe just a couple of other comments about Investments. Because to Kate's point, we got ahead of this. We are expanding our air Hub. In Hong Kong, we are building a brand new air Hub and Philippines. And that positions us very well for these changing shifts in trade Lanes. I I think it's important to remember that of the 80 largest trade Lanes in the world. 49 have an Asian country on 1, end of the trade Lane, and 22 have an Asian country on both ends of the trade line. So, the Investments that we laid out several years ago, now will be able to capitalize on these shifting trade lines.

Unknown Executive: Great, thanks so much. And maybe if I can ask a follow up more domestically, we've seen smaller parcel carriers taking share in the parcel market, names like Lasership, Speedex, some gig economy carriers that compete with your roadie. Do you see them as you work on existing or prospective customers that put out RFPs to bid? What's your view on their strategy? They seem to be competing on price. And less comprehensive service.

Carol Tomé: What's your strategy to maintain your competitive moat? Well, competition's good. I will say that our offering is very different than theirs because we do operate an end to end network. And I mean, end to end from one coast to the other coast, and every aspect of the supply chain, we can meet our customers. From a market share perspective, we look at the addressable market, and for us, we define the addressable market as the market that excludes Amazon and excludes packages that are less than one pound. That market in the second quarter was soft, but we gained share.

Great. Thanks so much and maybe if I can ask a follow-up more domestically uh we've seen smaller parcel carriers taking share in the parcel Market names, like laser ship speedex, uh some gig economy uh carriers that compete with your Roi. Um do you see them uh as you work on uh existing or prospective customers that put out rfps to bid? What's your view on their strategy? They seem to be uh competing on price, and less comprehensive service, what's your strategy to maintain your competitive mode?

I will say that, um, our our offering is very different than theirs because we do operate an end to end Network. And I mean, end to end from 1 Coast to the other coast and every aspect of the supply chain, we can meet our our customers needs.

uh, from a market share perspective, we look at the addressable market and for us, we Define the addressable Market as the market that excludes Amazon and exclusive

Market, and the second.

Brian Dykes: We're very proud of the fact that we gained share in that market, even in this highly competitive environment.

Quarter was soft, but we gained share. We're very proud of the fact that we gained share in that market, even in this highly competitive environment.

Brian Dykes: And Carol, if I can just add one thing to that, because I think it's really important that the rep for piece growth of 5.5% is starting to show that the strategy of dynamically changing the volume in the network is working, right. And if you look at the segments where it really matters for us, S&B, our penetration was up 230 basis points. Commercial, our penetration was up 220 basis points. We actually saw our zone, which means people who are using our end-to-end network over long distances, get longer for the third straight quarter, right. The pace of the weight decline, which has been an industry trend, is slowing, right.

Brian Dykes: So we are shifting the volume and the characteristics in our network to customers that see value in our service offering. And we can talk a lot about the capabilities that we offer that our competitors do not. Like on healthcare, we have special labels that our competitors do not. Or we have RFID tagging on our packages that our customers do not. Or we have returns, boxless, labelless returns that our competitors do not.

Brian Dykes: So from a capability perspective, we will continue to invest in the capabilities that set us apart from our competitors.

At our, in our service offering, we could talk a lot about the capabilities that we offer that our competitors do not, like, um, in healthcare. We have special labels that our competitors do not have, or we have RFID tagging on our packages that our customers do not have, or we have returns boxless label-less returns that our competitors do not have. So, from a capability perspective, we will continue to invest in the capabilities that set us apart from our competitors.

Unknown Executive: Great.

Unknown Executive: Thanks so much for your time and insights as always. Thank you.

Great. Thanks so much for your time and insights as always.

Unknown Executive: And we do ask that participants please ask one question.

Bruce Chan: Our next question comes from the line of Bruce Chan of Stiefel. Please go ahead with your question. Good morning, everybody, and thanks. I just wanted to dig into the SMB results a little bit more.

Thank you. And we do ask that participants, please ask 1 question. Our next question comes from the line of Bruce Chan of staple. Please go ahead with your question.

Unknown Executive: Unknown Executive, Bascome Majors, Ravi Shanker, Nando Cesarone, Jonathan Chappell, Brian Dykes, clarity on on the macro or coming from competitive pressure. So as we said, our S&Bs are a bit challenged. We have, we talk to our S&B customers to understand how they're thinking about the current trade environment, and many of them are wrestling. They want to find different alternatives of sourcing, but if they knock on the door, they're not necessarily getting attention from the countries where they might be able to move their sourcing to. So there's really a lot of trade uncertainty out there. And it's not just trade uncertainty.

Hey, good morning everybody. And uh, thanks for the question here. Um, just wanted to dig into the SMB results, uh, a little bit more and see, you know, if you could provide some thoughts around, you know, whether that is all just policy uncertainty and something you think could accelerate. If you know, maybe we get more clarity on on the macro um or if there's anything you know, maybe coming from competitive pressure um as you know some of your peers are chasing that business as well.

So, as we said, our SMBs are a bit challenged. We have talked...

For Seb customers.

To understand how they're thinking about the current trade environment and many of them are wrestling.

Carol Tomé: Some of them are finding that in today's environment, credit conditions have tightened up a bit on them. So it's not that they don't have access to capital in the ways that they have seen in prior years. So there are a number of just challenges that this group is faced with. Our job is to listen to them through our supply chain mapping capabilities, help them think about how they might move their sourcing around, help them think how they might be able to reduce their costs by moving inventory in different places or using different modes of transportation.

Matthew Guffey: So with over 600 supply chain mapping projects in the second quarter, many of that came from our S&Bs. And Matt is here.

Matthew Guffey: Matt, is there anything you'd like to add on S&Bs? I'd just highlight one thing just to complement what Carol said. I think S&Bs are disproportionately impacted in this space. However, they're looking to UPS and where the strength of our capabilities, the strength of our network is really what positions us well right now. They come to us, one, because they trust the brand. But to Carol's point, they're looking to where they should source and should they shift manufacturing. They're looking at modes. Do you keep it near? Do you put it on an ocean container? And when we think about end-to-end, we do think about coast-to-coast, but we think about it globally across the world because we have an integrated network that positions us to win in that space.

They want to find different Alternatives of sourcing but there is they knock on the door, they're not necessarily getting attention from the countries why they might be able to move their their sourcing to. So there there's really a lot of trade uncertainty out there and it's not just trade uncertainty, some of them are are finding that in today's environment. Credit conditions have tightened up a bit on them. So it's not that they don't have access to Capital in the ways that they have seen in Prior years. So there there are a number of of, of, of just challenges. This, this group is, is faced with our job, is to listen to them through our supply chain, mapping capabilities. Help them, think about how they might move their sourcing around. Help them, think how they might be able to re reduce our costs by, um, moving inventory in different places or using different modes of transportation. So with over 600 supply chain mapping projects in the second quarter of many that came from the rfm days. And and Matt is here, Matt, is there anything?

You'd like to add on FB. I just, I just highlight 1 thing. Just to compliment what Carol said, I think smbs are disproportionately impacted in this space. However, they're looking to UPS and where the strength of our capabilities. The strength of our network is really what positions us, well, right now,

They, they come to US 1 because they trust the brand, but the Carol's point they're looking to where they should source and should they shift manufacturing? They're looking at modes, do you keep it near? Do you put it on an ocean container? And when we think about end to end, we do think about Coast to Coast, but we think about a globally across the world because we have an integrated Network that position just to win in that space.

Matthew Guffey: I might highlight healthcare as well in the SMB. We are seeing the shining light through our differentiated capability with our lab placards and our U.S. operators are delivering 99% plus on basically doctor's offices and assurance that your lab sample will go back to the lab, your specimen, be tested and literally we get into Worldport up to, call it 1 a.m. and it's back on to the patients if it's a treatment and doorstep by 10.30, I mean that is exceptional service.

Matthew Guffey: And maybe one other comment, just a bright spot on SB World and that's our digital access platform. That platform continues to provide excellent service for our customers. We have 41 partners on that platform serving over 7 million shippers and we saw good growth on that platform again in the second half of the year. Thank you.

I might highlight uh Healthcare as well and the SMB, um, we are seeing The Shining Light through our differentiated capability with our lab placards and our us operators are delivering 99% Plus on, basically doctor's offices and assurance that your lab samples will go back to the lab, your specimen, be tested and literally we get into World Court up to call it 1:00 a.m. and it's on back on to the uh patience. If it's a treatment doorstep by 10:30, I mean that is exceptional service and maybe 1 other comment just a bright spot on SD world and that's our digital access platform. That platform continues to provide excellent service for our customers. We have 41 Partners on that platform serving over 7 million uh shippers.

And we saw a good growth on that platform again. In the second quarter.

That's great. Thank you.

Rob Salmon: Your next question is coming from the line of Chris Wetherbee of Wells Fargo. Please go ahead with your question. Hey, good morning, guys.

Thank you. Your next question is coming from the line of Chris Weatherbee of Wells Fargo.

Please go ahead with your question.

Rob Salmon: It's Rob Salmon on for Chris. With regard to the outlook that you just provided, Brian, in terms of the second half shape of the margins, could you discuss a little bit more how international package margins trended over the quarter, as you saw the much bigger declines on that Asia-U.S., on the China-U.S. trade lane? And what your expectations are looking out to the third quarter? I thought I heard a little bit of flattish, but it would be really helpful if we could get a little bit of color, given the cost adjustments that you guys were making.

Brian Dykes: Sure. And Rob, I do think it's worthwhile to brag a little bit on the international and the air team here, because we did see, you know, the train flows played out about as we expected. But as Carol mentioned, the magnitudes were very different, right? And so we did see that China to US decline more than what we expected. We saw China to the rest of the world increase more, particularly in specific lanes. Within the second quarter, we made over 100 ad hoc adjustments to our air network to flex to what our customers needed us to do.

Hey, good morning guys. It's Rob sammon for Chris uh with regard to the Outlook that you had just provided Brian in terms of the second half shape of of the margins could you discuss a little bit more how international package margins trended over the quarter? Uh as you saw the the much bigger decline on that Asia U on the China us trade Lane and what your expectations are looking at that third quarter, I thought I heard flattish but um it would be really helpful if we could get a little bit of color, given the cost adjustments that you guys were making their

Brian Dykes: Which I think is a tremendous accomplishment for the international team. And it shows up in the export growth numbers that were that were really, really strong. Now, what that does mean is, look, there's some frictional costs, right? It's where you're adjusting that air network. And I think as we move through the third quarter, and we get more certainty on tariffs, we get more certainty, certainty on orders for peak from our customers, we'll be able to harden off the capacity on those lanes, get the assets in the right place and continue to drive the margin. Right now, we think it's kind of the same second quarter, the third quarter, but as we get more certainty, that allows us to make adjustments that can drive the margin back to where we think international can be high teams over the long term.

Brian Dykes: And part of the margin contraction was due to less demand related surcharges this year than last. And when do we last that Brian?

Brian Dykes: We'll last that in the fourth quarter. Thank you.

China, the US declined more than what we expected. We saw China to the rest of the world. Um uh increase more particularly in specific Lanes. Within the second quarter we made over 100 ad, hoc adjustments to our are network to flex to what our customers needed us to do, which I think is a tremendous accomplishment for the international team. And it shows up in the export growth numbers that were, that were really, really strong. Now, what that does mean is look, there's some frictional costs right as we're you're adjusting that are networked. And I think as we move through the third quarter and we get more certainty on Tara, we get more sort of certainty on orders for peace. Um, from our customers, we'll be able to harden off the the capacity on those Lanes, get the Assets in the right place and and continue to drive the margin right now. We think it's kind of the same second quarter to third quarter, but but as we get more certainty, that allows us to make adjustments, that can drive the margin back to where, where we think International can be submit High Teens over the long term and part of the margining contraction was due to less demand related. Search charges this year than last. And when do we last that current

Uh, we'll last that in the, in the, in the fourth quarter. Yeah.

Ravi Shanker: Our next question comes from Ravi Shanker from Morgan Stanley. Please go ahead with your question. Great. Thanks, everyone. Carol, you said that the Amazon glide down is proceeding for the most part as planned. Can you share some light on what is not going as planned, maybe? Is it just the shifting rate of drawdown in 1Q and 2Q, or is there something else different next year? It's simply the attrition rate. The attrition rate is not where we thought it would be, and as I mentioned, Ravi, the building closures were back-end weighted towards the end of the quarter.

Thank you. Our next question comes from Robbie Chancre from Morgan Stanley. Please go ahead with your question.

Uh, great, thanks morning, everyone. Um, Carol. You said that the Amazon Glide down is proceeding. Uh, for the most part as planned. Uh, can you share some light on what is, uh, not going as planned? Maybe kind of? Is it just the the shifting uh, uh, uh, rate of uh, of draw down in 1 q and 2 Q or is there something else different than expected?

Carol Tomé: And what we see as time goes on, the longer a building is closed, the higher the attrition rate. To make that real for you, in the first month of closure, it's in the single digit. By the third month of closure, it's 25%. So the turnover on the part-time hourly side is going to normalize over time as time progresses. On the full-time drivers, they have the opportunity to bump into a building. They can follow the work and bump into the building if there's no driving work. And that's fine for them if they choose to do that, but we are offering them an opportunity to leave with a nice check if they say, that's not work we want to do.

Nando Cesarone: And if you think about our drivers, Nando, tell me, how many of our drivers have been driving for 35 years or more? Yes, so 84, 85% of our drivers are at top-end of our pay scale. And anywhere from 25 to 40 years of service, we have thousands and thousands of drivers that we're entertaining a bio package. And just one comment on the Amazon drawdown. That is our biggest concern, but something we have to deal with that we have modeled a little differently. But on the whole, when you look at the variable expense that Brian had talked about, 8 million hours in the quarter, the semi-variable, 9,500 more employees, and we see part-time trading faster than full-time.

And as I mentioned, Robbie, the building closures were back-end weighted towards the end of the quarter and what we see as as time goes on the longer a building is closed the higher the attrition rate to make that real for you and the first month of closure, it's in the single digit by the third month of closure. It's 25%. So the turnover on the part-time hourly side is going to normalize over time. As we as time progresses, um, on the full-time drivers, they have the opportunity to bump into a building. They can follow the work and bump into the building if there's no driving work and and that's fine for them if that's if they choose to do that, but we are offering them an opportunity to leave with a nice check. If they say that's not work, we want to do. And if you think about our drivers, um now they'll tell me how many of our drivers have been driving for 35 years or or more. Yes. So um, 84 85% of our drivers are

At you know, top end of our pay scale and anywhere from 25 to 40 years of service. We have thousands and thousands of drivers that we're entertaining a bio package and just 1 comment on the uh, Amazon draw down. That is our biggest. Um,

Concern, but something we have to deal with. We had modeled it a little differently.

Nando Cesarone: So we'll be at a – call it even as we continue drawing down on Amazon. So the real concern is in our full-time category. And then for our fixed buildings, I'd say it's mostly administrative. So payroll, assigning people to the right new facilities and new positions. But in the end, 74 facilities, 155 operations, I think, done rather smoothly, and our service continues to be very strong. So I couldn't be more pleased with how we're progressing on this strategic pivot. It's just we modeled a nutrition rate that didn't hold in the second quarter, but we expect that to correct over time.

But on the whole, when you look at the variable expense that Brian had talked about, uh, 8 million hours in the quarter, uh, the semi variable 9 and a half thousand more employees, and we see part-time at trading, faster than full-time. So we'll be at a, uh, call it even as we continue drawing down on on Amazon. So, the real concern is in our full-time category and then for our fixed buildings, um, I'd say it's mostly administrative so payroll assigning people to the right, uh,

Nando Cesarone: And, Ravi, one other thing I would just add, because I think it's important, on the top line, the volume, you know, we've worked very closely with Amazon on the glide down and how we do this in an orderly manner for both our network and their networking customers, and it's all going very well. As you think about the pace of that, we always said, you know, the first half was around 13%, and the second half jumps to 30%. Just to kind of give you context on that, what that means is, from the second quarter to third quarter, the decline is an incremental, sequential 500,000 pieces, right?

New facilities and new positions. Uh, but in the end 74 facilities, 155 operations, I think done rather smoothly and our service, uh, continues to be very strong. So, so I couldn't be more pleased with how we're we're. Um, progressing on this strategic Vivid, it's just we modeled the nutrition, right? That didn't hold in the in the second quarter, but we expect that to correct over time.

Nando Cesarone: And so that's why we're moving to get ahead of the cost out. Nando's team's got a great plan on how we pull down on the assets, the hours, and the people as we go into the second half, and we're tracking to that $3.5 billion cost takeout. If I could just add also, that's a big number, 30%, when you think about it, but we're going to feather into a peak season in a much more efficient way. As we think about peak and the spike, although we don't have 100% of the picture yet, we will see that that Amazon glide down feathers into peak very nicely for our company.

And Robbie, 1 1. Other thing, I would just add because I think it's important on the, on the top line, the volume, you know, we we've worked very closely with Amazon on the, on the Glide down and how we do this in an orderly manner, for both our Network and, and their networking customers. And and it's and it's all going very well. As you think about the pace of that, we always said, you know, the first half was the first half was around 13% and the second half jumped to 30, just to kind of give you context on that. What that means is from the second quarter to third quarter. The decline is an incremental, sequential 500,000 pieces, right? And so that's why we're, we're moving to get ahead of the cost out Nando. Teams got a great plan on how we pulled pull, pull down on the assets, the hours and the people. Um as we go into the second half and and and we're we're tracking to that 3 and a half billion dollar cost takeout if I could just add also uh that's a big number 30 when you think about it. But we're going to feather into a peak season in a much more efficient way as we think about Peak and the spike. Although we don't have a 100% of the picture yet.

A couple.

Unknown Executive: That's really helpful detail. Is there a risk that this lower attrition rate could put that three and a half billion of cost savings at risk or maybe shift the timing out a little bit? Or do you expect that to catch up over time? We expect that to catch up over time. Understood. Thank you.

That's really helpful detail. Kind of, is there a risk that this lower attrition rate? Could put that 3 and a half billion of of cost savings at risk or maybe shift the timing out a little bit? Or do you expect that to catch up over time?

We expect that to catch up over time.

Understood, thank you.

Connor Cunningham: Our next question comes from the line of Connor Cunningham from Mellius Research. Your line is live. Hi, everyone. Thank you. Maybe just sticking with the facility closures. So you did 74 in the first half. I was hoping that you could level set on what you expect to do in the second half. And in the same context, could you talk about how much volume is going through fully automated facilities and what do you expect at the end in 2025? The bigger question I have, though, is, is that all enough that we get to the point where we can start to see margins uptick next year?

Thank you. Our next question comes from the line of Conor Cunningham from Melius research. Your line is live.

Unknown Executive: I realize there's a lot going on in the world, but just as you level set today, just how that's all true. That's how it's all going right now. Thank you. Sure, thanks.

Hi everyone. Thank you. And maybe just sticking with the with the facility closures. I I so you did 74 in the first half. I, I was hoping you could level set on what you expect to do in the second half and then the same contacts. Could you talk about how much volume is going through a fully fully automated facilities and where you expect that to end in 2025? The bigger question. Bigger, question I have though is, is, is that all enough that we, that we get to the point where we can start to see margins, you know, uptick next year, I realize there's a lot going on in the world but just as you level set today, I just how that's all. That's all. It's all going right now. Thank you.

Unknown Executive: Thank you very much for the question. And on the building closures, look, we're evaluating a number of different options. There's several buildings that we're looking at. And we'll come back with more information on how many that we're going to do. Because there's the Amazon piece, and then there's also the macro, we've got to take into account the impact on the entire network. So we'll provide more color on that. On the automation, look, we continue to invest in automation within the network. Because remember, we're not just we're not just sliding down Amazon volume and eCommerce volume, we're also investing to be a more efficient network that's going to make a higher margin as we as we as we go forward.

Sure, thanks. Thank you very much for the question and, and, and on the building closures. But we're we're evaluating a number of of different options. There's several buildings that we're looking at and and we'll come back with with more information on how many that we're going to do. Um, because there's there's the Amazon piece and then there's also the macro and we've got to take into account the impact on the on the entire network. So we'll we'll provide more color on that on the automation. Look we continue to invest in automation um uh within the network.

Unknown Executive: In the second quarter, 64% of our volume went through automated facilities, up from 60% in the second quarter of last year. So we continue to make material improvement. And those automated facilities give us more flexibility to add sorts, be more dynamic with how we manage the volume. And ultimately will help us scale more efficiently for peak and drive better cost structure as we as we reset the network.

Unknown Executive: You know, we're Connor, this is a big strategic pivot. And the reason why we're doing this is to grow the US margin. We're all hands on deck here to grow the US margin. But I think it's another great proof point. Look, we got a proof point and we're getting the right volume into the network, we're getting more volume through automation. And ultimately, Carol, you're exactly right, that drives better, better long term margin. Thank you.

Because remember, we're not, just, we're not just gliding down, uh, Amazon volume, and e-commerce volume. We're also investing to be a more efficient Network that's going to make us higher margin as we as we as we go forward. And the second quarter, 64% of our volume uh went through automated facility up from 60% in the second quarter of last year. So we continue to make material Improvement and those automated facilities. Give us more flexibility to add sorts be more Dynamic with how we manage the volume and ultimately will help us scale more efficiently for Peak and drive better cost cost structure as we as we reset the network. You know, we're Conor this is a big strategic pivot.

The reason why we're doing this is to grow the U.S. margin. Yeah.

We are all hands on deck here to grow the U.S. margin, but I think it's another great proof point. Look, we got a proof point in that we're getting the right volume into the network. We're getting more volume through automation, and ultimately, Carol, you're exactly right. That drives better long-term margin. Yeah.

Jordan Alliger: Our next question is coming from the line of Jordan Alliger from Goldman Sachs. Please go ahead with your question. Yeah, hi, morning, curious, you know, I know there's a lot of peak uncertainty out there. perhaps customers are waiting and seeing to see what happens and to the extent maybe that delays. stuff coming in and containers on ocean ships, etc. I mean, is it possible if the consumer stays resilient that your peak season surge as people need faster air could actually give some tailwind to it back after the year or at least the fourth quarter. It's absolutely possible.

Thank you. Our next question is coming from the Lion of Jordan Aller, from Goldman Sachs. Please go ahead with your question.

Yeah. Hi morning. Curious, you know, I know there's a lot of peak uncertainty out there, um, and perhaps customers are waiting and seeing to see what happens and to the extent, maybe that delays.

Stuff, uh, coming in in containers, on Ocean ships, Etc. I mean, is it possible if the consumer stays resilient that your peak season? Surge is people need faster are could, could could actually

Give some tailwind to the back half of the year, or at least the fourth quarter. Thanks.

Unknown Executive: We just don't have the plans yet. I talked to the CEO recently and I said, What do you think about Peaky says I'm planning to win, which tells me that he's planning to have a pretty good So we will have a better sense of this at the end of the third quarter, at which time we will plan to give you guidance. Okay, thank you. Thank you.

I talked to a CEO recently, and I said, "What do you think about Peak?" He says, "I'm planning to win," which tells me that he's planning to have a pretty good pace here.

Uh,

we'll have better sense of this, though, at the end of the third quarter, at which time we will plan to give you guidance

Okay, thank you.

Ken Hoexter: Your next question is coming from Ken Hoexter from Bank of America.

Ken Hoexter: Please go ahead with your questions. Hey, great. Good morning.

Thank you. Your next question is coming from Ken Hoster from Bank of America.

Please go ahead with your question.

Carol Tomé: Um, I guess on ground margins, maybe two parts, Carol, I think I'm a little confused on your answer to Ravi on the Amazon side, where you talked about the time of facility closures relative to the attrition rate. I just want to understand, though, the concept, is the volume still on target with as you expected, or it sounded like this quarter was a little lighter in terms of fading away? And so I'm just not not certain. Is that is that changing the plans from the pace you're moving Amazon? I got the you're going to accelerate the 30%.

Carol Tomé: I just want to understand if something happens where they don't fade away.

Brian Dykes: And then secondly, on the ground saver, you're, are you surprised that you won the business two quarters ago? Are you confident still to get to the double digit margins? I'm just surprised in such a short timeframe from winning the contract that we're, we're not seeing, you know, there's there's cost adjustments that need to be made. Maybe you can talk about that.

Hey great. Good morning. Um, I guess on on ground margins, maybe 2 parts Carol. I think I'm a little confused on your, your answer to Ravi on the Amazon side where where you talked about the time of facility closures relative to the attrition rate. I I just want to understand though, the concept is the volume still on target with as you expected or it sounded like this quarter was a little lighter in terms of fading away. And so I'm just not not certain is that, is that changing the plans from the patient you're moving Amazon behind. I got the you're going to accelerate the 30%, but I just want to understand if something happens where they don't fade away and then, secondly, on the

Ground saver. Um, are you surprised that, you know, you won the business 2 quarters ago? Or are you confident still to get to the Double Digit margins? I'm just surprised in in, in such a short time frame from winning the contract that we're, we're not seeing, you know, there's, there's cost adjustments that need to be made, maybe you could talk about that.

Brian Dykes: All right, so on the Amazon glide down, the glide down, I'll just give you the numbers, Q1, the glide down was 600,000 pieces a day, and Q2, the glide down was 400,000 pieces a day. It was a little lighter than we had anticipated, but that's because of volume we wanted to... You know, as you recall, we have a very complicated relationship with Amazon, and part of it is volume that we want to grow and keep, and part of it is volume that we want them to deliver. And the volume that we want to grow and keep, it was better than we anticipated, so I give that a check in the right direction.

Carol Tomé: The only thing that's off is the attrition rate. And the attrition rate, we had models of an attrition rate based on when we thought it would come in. It's coming in a little bit later than we thought, but it's still going to come in. So from a full year perspective, very pleased with the Amazon slide down.

Brian Dykes: Now on Brown's favor. We, too, had a modeled algorithm that we put into our plan regarding delivery density per That algorithm did not work. And so what we found is that we had more expense than we had anticipated in the second quarter. To dimensionalize that for you, it was about $85,000. We are working on operational changes that we could make, but we also have reengaged with the USPS. There's new leadership there, they have excess capacity, and so we're having a discussion.

We we have a a a very complicated relationship with Amazon and part of it is volume that we want to grow and keep and part of it is volume that we want them to deliver and the volume that we want to grow and keep it was better than we anticipated. So I give that a check in the right direction. The only thing that's off is the attrition rate and the attrition rate we had modeled our nutrition rate based on when we thought it would come in, it's coming in a little bit later than we thought, but it's still going to come in. So, from a, for a full year perspective, very pleased with the Amazon slide down now, on ground favor.

Um, we too have a modeled, um, algorithm that we put into our plan regarding delivery density per stop.

That algorithm did not hold.

And so what we found is that we had more expense than we had anticipated in the second quarter to dimensional for you. It was about 85 million dollars.

We are working on operational changes that we could make, but we also have re-engaged with the USPS.

There's new leadership there.

Brian Dykes: Brian, what would you like to add? And I think, look, we also have a very complicated relationship with the USPS as well, and I want to distinguish GroundSaver, which was our former SurePost product, where we insourced the volume from the USPS, from the air cargo volume that we won last year. The air cargo volume, look, it's going great. It's fully implemented. Teams work really well together. As with every relationship, there's operational stuff that we're constantly working on to make each other better, but I think that's been a win for the USPS. It's been a win for us, and it's driving a creative margin.

They have excess capacity and so we are. We're having a dust discussion with them try. What would you like to add and and can I? And, and I think look, we we also have a very complicated relationship with the USPS as well. And I wanted to distinguish ground saver which was our former sherlo product where we in-source the volume from the USPS, from the air cargo volume that we won last year, the air cargo volume look. It's it's going great. It's fully implemented.

Brian Dykes: So the GroundSaver, where we insourced our former SurePost volume, is causing a little bit of a cost plunge.

Uh, teams work really well together as with every relationship, there's operational stuff that we're constantly work on to make each other better, but but I think that's been a win for the USPS. It's been a win for us and it's driving. A creative margin, um, the the ground saber, where we in-source, our former shortest volume is causing a little bit of the cost cost.

Unknown Executive: Helpful clarification. Thank you, Brian. Thank you, Carol. Thank you.

Helpful clarification. Thank you Brian. Thank you, k.

Joe Hafling: Our next question comes from the line of Stephanie Moore of Jeff. Please go ahead with your questions. Great. Good morning.

Thank you. Our next question comes from the line of Stephanie Moore of Jeffrey's. Please go ahead with your question.

Carol Tomé: This is Joe Hafling on for Stephanie Moore. Busy day for transports today. Carol, I kind of wanted to go back to peak season and understanding that, you know, we'll get more clarity as kind of the year progresses. But I'm sure you've seen maybe some of the same calls that we won't see a peak season this year or that peak season already occurred with all the pre-tariff shipping. So I don't know if you had any thoughts on that or if your conversations with shippers where inventory levels currently are. I know the demand picture remains uncertain, but if you could maybe help unpack, you know, kind of the puts and takes on thinking about peak season in that regard.

Carol Tomé: So we have about 100 customers that drive 80% of the service. Ordinarily, we don't get peak plans until the end of August and then final plans the end of September. I think they're going to be pushing them more into September as they're working through their plans. In my conversations with CEOs, no one's telling me they're not going But they're not in a position to dimensionalize that for us, as you can appreciate, because all of the macro issues that we are all facing.

Great. Good morning. This is Joe Hoffman on for Stephanie. It's a busy day for transports today. Um, Carol, I kind of wanted to go back to peak season and understanding that, you know, we'll get more clarity as we kind of get nearer to it. But I'm sure you've seen maybe some of the same calls that we won't see a peak season this year or that peak season already occurred with all the 3TE shipping. So, I don't know if you had any thoughts on that, or if your conversations with shippers have indicated what inventory levels currently are. I know the demand picture remains uncertain, but if you could maybe help unpack, you know, kind of the puts and takes when I'm thinking about peak season in that regard.

Um, so we have about 100 customers that drive 80% of the surge during peak.

Ordinarily. We don't get Peak plans until the end of August and then final plans, end of September, I think they're going to be pushing them more into September as they're working through their plans in my conversations with CEOs. No, 1's telling me they're not going to have a peak.

Nando Cesarone: So we are going to be ready for whatever happens, because to Nando's point, we have more agility in our network than ever before because of the strategic pivot that we've made with our larger So we'll be prepared up or down, won't we, Nando? What would you like to add? We'll be prepared if there's a volume influx or a volume reduction. Peak season for us is very variable. So we're able to scale up, scale down as quickly as possible. And those expenses don't linger once we scale down, if that's what we need to do. Scaling up, not concerned that, you know, where we currently sit.

Nando Cesarone: But again, everything we're doing from network to the future, the scaling down on Amazon is all feathered into our peak season plans. And so it should fit quite nicely and allow us to have a really good quality service peak season.

But they're they're not at a position to dimensional that for us as you can appreciate because all those all of the macro issues that they're they're we are all facing. So I we are going to be ready for whatever happens because Fernando's point we have more agility in our Network than ever before because of the Strategic pivot that we've made with our largest customer. So we'll be prepared up or down, what we need. What would you like to add? We we'll be prepared. Uh, if there's a volume influx or a volume reduction peak season for us is very variable, so we're able to scale up, scale down as quickly as possible. And those expenses don't linger once we scale down, if that's what we need to do scaling up uh not concerned that you know where we currently sit. Uh but again everything we're doing from uh Network to the Future. The scaling down on Amazon is all feathered in to our peak season plans and so it should fit quite nicely and allow us to have a really good uh, quality service.

Season as well.

Unknown Executive: And Matthew, we have time for one more question. Certainly.

And, Matthew, we have time for one more question.

Scott Group: Our final question comes from the line of Scott Group of Wolf Research. Please go ahead with your question. Hey, this is Jake Laxon for Scott. Thanks for your time.

Certainly, our final question comes from the line of Scott, Group of Wolf Research. Please go ahead with your question.

Hey, this is Jake Lacson for Scott. Thanks for your time.

Jake Laxon: So, just to confirm, are the employee buyouts included in the $3.5 billion of savings? And any early sense on how large this can be? And then, any updates you can provide on efficiency reimagined looking out into 2026? Do you think you can see a similar number as Amazon volumes continue to glide down or does this lower attrition mean maybe there's some more limited opportunity?

So just to confirm are the employee. Bio included in this 3 and a half billion of savings um and any early cents on how large this can be and then any updates you can provide on efficiency reimagine looking out into 2026 and do you.

Do you think you can see a similar number as Amazon volumes continue to Glide down? Or does the floor attrition mean? Maybe there's some more limited opportunities here.

Brian Dykes: So thanks for the question. So first of all, yes, so the driver separation package is a lever for us to get to the $3.5 billion. So it's a means for us to accelerate the attrition levels to get back on plan. And we expect that, as Carol said, part timers will work out over time, full timers, we'll get them on plan. As far as efficiency reimagined goes, look, we're seeing good traction. We saw a steep ramp in the second quarter, it'll ramp in the back half and then that wraps next year. So, yes, we would expect that the volume for Amazon continues to climb, efficiency reimagined ramps, that'll carry through a similar number to next year.

Brian Dykes: It's early days on the driver buyout, but so far it's progressing as we would expect. Once we have gotten it finished and we understand the dollar or number of drivers who have elected to leave us, then we can tell you what the... All right.

Plan, uh, and and and we expect that, as Carol said part-timers will will work out over time, full-timers. Will will get them on plan. Um, as far as efficiency reimagine goes look, we're seeing good traction. We saw a steep ramp in the second quarter, it'll ramp in the back half and then that, that wraps next year. So yes, we would expect that the volume for Amazon continues to climb efficiency reimagine ramps. It'll carry through a similar number to next year.

It's early days on the uh driver bio but so far it's progressing. As we would expect, once we have gotten it finished and we understand the the dollar or number of drivers who have elected to to leave us then we can tell you what the money is.

Unknown Executive: Thanks for squeezing me in. Appreciate it. Thank you.

All right, thanks for squeezing me in.

Appreciate it. Thank you.

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

Thank you. I'll now turn the floor. Back over to your host, Mr. PJ go.

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

Thank you, Matthew. This concludes our call. Thank you for joining, and have a great day.