UPS(UPS) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenue for the second quarter was $21.2 billion, with an operating profit of $1.9 billion and an operating margin of 8.8% [6][26] - Average daily volume in the U.S. declined by 7.3%, while revenue declined by only 0.8% due to strategic actions taken [9][10] - Diluted earnings per share were reported at $1.55 [26] Business Line Data and Key Metrics Changes - U.S. Domestic segment revenue was $14.1 billion, down slightly year-over-year, primarily due to a decline in Amazon revenue [31] - Average daily volume for Air services decreased by 11.6%, but excluding Amazon, it increased by 1.4% [27] - Groundsaver product volume declined by 23% year-over-year due to pricing actions and a shift in e-commerce volume [17][28] - Healthcare Logistics grew revenue by 5.7%, while UPS Digital, including Roadie and Happy Returns, saw a 26.4% increase in revenue [38] Market Data and Key Metrics Changes - The China to U.S. trade lane experienced a 34.8% drop in average daily volume in May and June due to increased tariffs [11][35] - International average daily volume increased by 3.9%, with export volume up by 6.1% year-over-year [34] - The overall U.S. small package market was negatively impacted by low consumer sentiment, leading to a decline in demand [7][8] Company Strategy and Development Direction - The company is focused on reducing costs by approximately $3.5 billion this year through efficiency initiatives and network reconfiguration [16][41] - The strategic priority includes growing the international small package business and enhancing healthcare logistics capabilities [13][19] - The company is actively engaging in supply chain mapping assessments to help customers navigate tariff uncertainties [12] Management's Comments on Operating Environment and Future Outlook - Management noted that the current operating environment is complex and uncertain due to changing trade policies and consumer behavior [21][24] - There is no forward-looking revenue or earnings guidance provided due to the unpredictability of the market [22][46] - The company remains committed to a stable and growing dividend, supported by strong free cash flow [23] Other Important Information - The company is undergoing the largest network reconfiguration in its history, with 155 operations closed and plans for more closures in the second half of the year [41][44] - The attrition rate for employees was lower than expected, impacting cost savings initiatives [56][102] Q&A Session Summary Question: Is the lack of guidance a sign that things are worse or just uncertain? - Management indicated that the uncertainty in the market is significant, leading to the decision not to provide guidance [50][51] Question: How do you feel about progress on cost cuts being enough to exit with domestic margins at double digits? - Management expressed confidence in achieving the $3.5 billion cost reduction target but acknowledged challenges with attrition rates and Groundsaver costs [55][60] Question: When do you expect to fully lap the costs on the trade lane shifts? - Management noted that they are adjusting resources quickly to capture growth in other trade lanes, particularly in Southeast Asia [69][70] Question: How does the company view competition from smaller parcel carriers? - Management acknowledged competition but emphasized the unique end-to-end service offering that sets the company apart [76][80] Question: What are the expectations for SMB results and their challenges? - Management highlighted that SMBs are facing challenges due to trade uncertainty and tighter credit conditions, but the company is providing support through supply chain mapping [86][89]