UPS - NYSE
United Parcel Service, Inc.
UPS·NYSE
$108.69
-0.23%IndustrialsIntegrated Freight & Logistics
United Parcel Service, Inc. provides letter and package delivery, transportation, logistics, and related services. It operates through two segments, U.S. Domestic Package and International Package. The U.S. Domestic Package segment offers time-definite delivery of letters, documents, small packages, and palletized freight through air and ground services in the United States. The International Package segment provides guaranteed day and time-definite international shipping services in Europe, the Asia Pacific, Canada and Latin America, the Indian sub-continent, the Middle East, and Africa. This segment offers guaranteed time-definite express options. The company also provides international air and ocean freight forwarding, customs brokerage, distribution and post-sales, and mail and consulting services in approximately 200 countries and territories. In addition, it offers truckload brokerage services; supply chain solutions to the healthcare and life sciences industry; shipping, visibility, and billing technologies; and financial and insurance services. The company operates a fleet of approximately 121,000 package cars, vans, tractors, and motorcycles; and owns 59,000 containers that are used to transport cargo in its aircraft. United Parcel Service, Inc. was founded in 1907 and is headquartered in Atlanta, Georgia.
At a Glance
Live SnapshotMarket Cap$92.39B
EPS6.5600
P/E Ratio16.57
Earnings Date07/28/2026
Earnings Call Transcript
UPS • 2026 • Q1
Operator
Good morning. My name is Matthew, and I will be your facilitator today. I'd like to welcome everyone to the UPS first quarter 2026 earnings conference call. All lines have been placed on mute to prevent background noise, and after the speaker's remarks, there will be a question-and-answer period. Any analysts that want to ask a question, now is the time to press Star then 1 on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. PJ Guido, Investor Relations Officer. Sir, the floor is yours.
PJ Guido
Good morning and welcome to the UPS first quarter 2026 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 2025 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. Unless stated otherwise, our discussion refers to adjusted results. For the first quarter of 2026, GAAP results include after-tax transformation charges of $42 million or $0.05 per diluted share.
Brian Dykes
Thank you, Carol. Good morning, everyone. This morning I'll cover our first quarter results. I'll give an update on the Amazon glide down and our network reconfiguration and cost out efforts. I'll wrap up with our financial outlook for the remainder of 2026. Moving to our results. Execution across our business was strong, with results coming in above our expectations. Starting with our consolidated performance. In the first quarter, revenue was $21.2 billion and operating profit was $1.3 billion. Consolidated operating margin was 6.2% and diluted earnings per share were $7.00. Moving to our segment performance. U.S. Domestic remained focused on revenue quality while executing our Amazon glide down and network reconfiguration initiative. These strategic actions drove SMB average daily volume growth and strong year-over-year revenue per piece growth.
Brian Dykes
For the quarter, total U.S. average daily volume was down 8% versus the first quarter of last year. Nearly 2/3 of the decline came from the glide down of Amazon volume and our deliberate actions to remove lower-yielding e-commerce volume from our network. Total air average daily volume was down 8.9% year-over-year, including the glide down of Amazon volume. Ground average daily volume was down 7.9% compared to the first quarter of 2025. Moving to customer mix, SMB average daily volume increased 1.6% year-over-year, driven by high tech, healthcare, and automotive customers. In the first quarter, SMBs made up 34.5% of total U.S. volume, marking the highest SMB penetration in our history.
Brian Dykes
Looking at B2B, while average daily volume was down 5.1% year-over-year, it represented 45.2% of our total U.S. volume, which was a 140 basis point improvement versus the first quarter of last year and was our highest first quarter B2B penetration in six years. Our continued focus on revenue quality and a more premium U.S. volume mix has delivered several consecutive quarters of product and customer mix improvements, reinforcing that our strategy is working. Moving to revenue. For the first quarter, U.S. Domestic generated revenue of $14.1 billion. This was a decrease of 2.3% year-over-year against an ADV decline of 8%, with strong revenue per piece growth of 6.5%, largely offsetting lower volume. Breaking down the components of the 6.5% revenue per piece improvement.
Brian Dykes
Base rates and package characteristics increased the revenue per piece growth rate by 340 basis points. Customer and product mix improvements increased the revenue per piece growth rate by 200 basis points. The remaining 110 basis point increase was due to changes in fuel price. Turning to cost. In the first quarter, total expense in U.S. Domestic was nearly flat. While we delivered higher productivity and continued to make progress on the Amazon glide down, those benefits were partially offset by short-term cost pressures in the first quarter. As Carol mentioned, these included temporary third-party lease expense to cover capacity constraints from retiring our fleet of MD-11 aircraft, transition costs and excess operational staffing related to Ground Saver, and the combination of inclement weather costs and higher casualty expense.
Brian Dykes
Combined, these pressures totaled about $350 million in additional expense for the first quarter. Cost per piece in the first quarter increased 9.5% year-over-year. The U.S. Domestic segment delivered $565 million in operating profit, and operating margin was 4%, including a 250 basis point negative impact from the short-term cost pressures. These cost pressures are largely behind us as we move into the final months of the execution of our Amazon glide down and network reconfiguration initiative. Moving to our International Segment. In the first quarter, revenue grew across all regions, driven by strong revenue quality and our focus on premium markets. We saw signs of recovery in trade lane shifts stemming from the 2025 trade policy changes.
Brian Dykes
Additionally, with the onset of the conflict in the Middle East, we adjusted our network and continued to serve our global customers throughout the first quarter. In the first quarter, total international average daily volume declined 6%. International domestic ADV decreased 6.6% compared to last year, led by a decline in Europe that was partially offset by growth in Canada. Like in the U.S., we saw improvement in customer mix, with SMB penetration reaching over 60%. On the export side, average daily volume in the first quarter decreased 5.5% year-over-year, led by declines on U.S. destination lanes resulting from the pull forward of purchases in the first quarter of last year, spurred by changes in trade policy.
Brian Dykes
U.S. imports in total were down 16.4% year-over-year, led by a 22.5% ADV decline from Europe to the U.S. The China to the U.S. lane, which is our most profitable trade lane, was lower by 18.3% compared to last year. As we have said before, with changes in trade policies, we see that trade doesn't stop. It moves somewhere else, we continue to see volume growth in other parts of the world. Turning to revenue. In the first quarter, International generated revenue of $4.5 billion, up 3.8% from last year, driven by strong revenue per piece growth. Operating profit in the International segment was $551 million, down $103 million year-over-year, primarily due to trade policy changes.
Brian Dykes
International operating margin in the first quarter was 12.1%. Looking at Supply Chain Solutions. Supply Chain Solutions made strong progress during the first quarter, highlighted by the doubling of operating profit year-over-year, driven by improvements across business units. In the first quarter, revenue was $2.5 billion, lower than last year by $176 million. Logistics revenue was down year-over-year, driven by lower revenue in Mail Innovations. This was partially offset by revenue growth in healthcare logistics. Reflecting market conditions, air and ocean forwarding revenue was down year-over-year. UPS Digital, which includes Roadie and Happy Returns, delivered another consecutive quarter of revenue growth, with revenue up 19.9% compared to the first quarter of 2025.
Brian Dykes
In the first quarter, Supply Chain Solutions generated operating profit of $206 million, an increase of $108 million year-over-year. Operating margin was 8.1%, up 450 basis points compared to last year. Lastly, looking at cash. In the first quarter, we generated $2.2 billion in cash from operations. Let me provide an update on our Amazon glide down, cost out, and network reconfiguration efforts from the first quarter. Starting with variable cost, total operational hours paced down with volume in the first quarter, and we're on track to reach our 2026 reduction target of 25 million hours versus last year. Looking at semi-variable costs, by the end of the quarter, we reduced operational positions by nearly 25,000 compared to the first quarter of last year.
Brian Dykes
The Driver Choice Program that we initiated during the quarter is expected to reduce full-time driver positions by approximately 7,500 over time, putting us firmly on target to reach our reduction goal of 30,000 operational positions this year. Moving to our fixed cost bucket, we completed the closure of 23 buildings during the first quarter. We are planning to close an additional 27 buildings this year, most of which will be closed in the second quarter. We are pleased with the progress that we are making on our Amazon glide down and network reconfiguration initiative and are on track to achieve our targeted $3 billion in savings in 2026. Moving to our 2026 financial outlook.
Brian Dykes
While the macroeconomic environment is different now compared to our expectations at the beginning of the year, we have been quick to adjust to the changing conditions, and we're continuing to closely monitor the broader impacts across the global economy. As Carol stated, we are reaffirming our full-year 2026 consolidated financial targets. We are on track to generate revenue of approximately $89.7 billion with an operating margin of approximately 9.6%. Diluted earnings per share are expected to be about flat to 2025. The conflict in the Middle East in March drove an immediate spike in fuel costs. Our fuel surcharges are linked to published fuel benchmarks and adjust with fuel prices on a weekly basis. We expect these surcharges to provide coverage as fuel prices continue to fluctuate. Now let me add color on the segments.
Brian Dykes
Looking at U.S. Domestic, full year 2026 revenue is still expected to be approximately flat year-over-year. We expect ADV to be down mid-single digits year-over-year due to our actions with Amazon, which will be offset by a strong revenue per piece growth rate in the mid-single digits. Full year operating margin is still expected to be flat to 2025. Looking at the second quarter of this year compared to the first quarter, the USPS transition has been completed. The Amazon glide down and network reconfiguration will wrap up by the end of June. We are leasing fewer replacement aircraft as 767 deliveries continue, and premium volume is expected to further improve mix. As a result, we expect revenue to be up low single digits and operating margin to be between 7.5% and 8.5%.
Brian Dykes
Moving to the International segment, starting with the full year. We still anticipate revenue growth in the low single digits year-over-year, driven by a solid increase in revenue per piece. Operating margin in the International segment is expected to be in the mid-teens. Looking specifically at International in the second quarter, we will lap tough comparisons from changes in trade policy, benefit from normal seasonal uplift, and continue to realize savings from our air network cost actions. As a result, we expect low single-digit revenue growth and an operating margin between 13% and 14%. In Supply Chain Solutions for the full year 2026, we still expect revenue to be up high single digits, which includes revenue from our Andlauer acquisition. Operating margin in SCS is expected to be in the low double digits.
Brian Dykes
Looking at the second quarter, we expect momentum from the first quarter to continue, and we expect revenue in SCS to be up low single digits year-over-year and operating margin between 9.5% and 10.5%. Now let's turn to our expectations for cash and the balance sheet. Capital expenditures are still expected to be about $3 billion, and we plan to make our annual pension contribution of $1.3 billion. We expect free cash flow to be approximately $5.5 billion, including one-time payments for the Driver Choice Program. Lastly, we are still planning to pay out around $5.4 billion in dividends in 2026, subject to board approval.
Brian Dykes
As we near completion of our Amazon glide down and network reconfiguration initiative, we will enter the second half of this year with a more agile and more automated network. Our focus is on premium volume and revenue quality, and we'll grow in the best parts of the market. Taken together, these actions set us up for operating margin expansion and greater operational agility. With that, operator, please open the lines for questions.
Operator
Thank you. We will now conduct a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question. Once again, if you have any questions or comments, please press star one on your phone. Our first question comes from the line of Tom Wadewitz from UBS. Your line is live.
Tom Wadewitz
Yeah, good morning. Thank you. I wanted to ask you a question about the kind of ramp from 1Q to 2Q. You were a bit, I think in early March, you pointed to kind of 4%-5%, 1Q margin. You were at the lower end of that. I know you identified that, I think, kind of $350 million total transitional costs.
Tom Wadewitz
How do you think about that, the key pieces of that ramp and just visibility to that versus what you might have had in terms of visibility to that ramp a month ago or two months ago? I, you know, I don't know if that, you know, kind of a little lower margin in 1Q reduces visibility or if you say, hey, that was just kinda transitional. How does fuel factor into the kinda 2Q versus 1Q? Is there some tailwind that you consider or is that something you don't factor in but could give you a little support? Really just to kinda how do we think about the key levers, 2Q versus 1Q. Thank you.
Brian Dykes
Sure. Good morning, Tom, and thanks for the question. Yeah, let me make a couple points on the impacts on the first quarter. First, if you think inside the quarter, right? Relative to the 4% margin, we incurred incremental weather and casualty costs that was more than what we had initially expected when we were setting the guide and where we were in March. That was about 70 basis points, which gets us, you know, kind of towards the higher end of the range that we laid out. Second, when you go from first quarter to second quarter, there's really two components, right? We have normal seasonal uplift, right, that from first quarter to second quarter. The other part is if you think about that weather and casualty, those are behind us, right?
Brian Dykes
The aircraft leases, as Carol and I both mentioned, we continue to take deliveries, so the incremental cost associated with those is coming down. We've now completed the Ground Saver outsourcing, so a lot of that transitional cost that we incurred in the first quarter now comes out. That helps you bridge from first quarter to second quarter. On fuel, look, we reaffirmed our guide. We are not updating for fuel at this point. Fuel didn't have a material impact in the first quarter because really the ramp in prices happened late in the quarter and as we've gone into April. Look, fuel, we manage fuel through fuel surcharges. Even though we have a large airline, we're very different than passenger airlines, and our industry operates very differently.
Tom Wadewitz
Great. Thank you.
Operator
Thank you. Our next question's coming from Scott Group from Wolfe Research. Your line is live.
Scott Group
Hey, thanks. Good morning. Just following up there, I get we don't know where fuel's gonna end up, but, you know, in a, in a higher fuel price environment where you guys are also raising the surcharge schedules, like should we assume that there is some sort of profit benefit from the higher fuel environment? Maybe just Carol, like let's just take a step back, like big picture, like, you know, we're gonna end up in the 7%-8% range on U.S. margin this year. Help us think about where that can go over the next couple of years. Do we get through the Amazon, you know, guide down? Maybe we start to see a little bit of wage inflation start to kick in again next year.
Scott Group
Where do you think margins can start to go over the next couple of years here?
Operator
Thank you. Our next question comes from Chris Wetherbee from Wells Fargo & Company. Your line is live.
Chris Wetherbee
Thanks. Good morning. Maybe just a quick clarification question, then maybe bigger picture, I guess, for the driver buyout in the second quarter. Can you just give a sense of what the impact will be, if there will be a benefit in 2Q from that? Maybe, you know, zooming out a little bit, as we're about a quarter away or maybe a couple of months away from the end of the Amazon glide down, there still is a significant amount of revenue associated with that customer. I think there's been some changes, and they're always doing various things in the market. I guess the question is, Carol, is this sort of where you want the portfolio? Do you think there is incremental work that needs to be done around that, how defensible it is?
Operator
Thank you. Your next question's coming from Jonathan Chappell from Evercore ISI. Your line is live.
Jonathan Chappell
Thank you. Good morning. Brian, I want to take Tom's question and flip it to International. As Carol noted, you did much better there. You were looking for flat revenue. You did up almost 4%. Your margin was over 12%. The range was 10%-11%. Yet the 2Q guide is exactly the same. Was there something temporary in 1Q that enabled you to beat by so much relative to what you were expecting in the first week of March? Why wouldn't that upside across both margin and revenue be extrapolated going forward?
Brian Dykes
Thanks. And yeah, we were very pleased with the performance in International. I think when you there's a couple things that drove it in the first quarter. As Carol mentioned, leaning into premium segments in Europe are helping us to drive revenue quality. As well as I would say that, you know, we mentioned the decline in the China to U.S. trade lane. While it's down, it's not as bad as what it has been, right? I would say things were not as bad as what we, what we expected or what they could have been. We are starting to see some recovery in certain trade lanes.
Jonathan Chappell
Yeah. Thank you.
Operator
Thank you. Your next question's coming from David Vernon from Bernstein. Your line is live.
David Vernon
Hey, good morning, guys. I'd like to kind of maybe understand the pace of cost takeout. Has there been any shift in timing caused by the discussions you have with the unions around the driver buyout? Brian, when you're thinking about the overall message you're trying to give us with guidance here, you know, it does seem like what first quarter domestic, if you give you credit for the $350 and International is performing really well, but we're not changing the full year. Like, is this just, well, you know what? We put the numbers out in the first quarter, and we're gonna see how the year plays out, and we'll update it later. Is something getting worse in the business that we can't see?
Brian Dykes
Yeah. David, I would just add to that. On the guide, Carol is absolutely right. We feel very good about the health of the underlying business. If you remember, we said SMB grew in the first quarter. We expect that to continue. We'll lap some of the actions that we took on the enterprise customers as we go through the second quarter and see growth ex Amazon in volume in the back half. We expect revenue ex Amazon to grow every quarter this year. Health of the underlying business is strong. Rev per piece is strong. Base pricing is strong. We feel really good about that. Carol hit on International. On the pace of cost takeout, nothing's changed, right?
Operator
Thank you. Your next question's coming from Stephanie Moore from Jefferies. Your line is live.
Operator
Thank you. Your next question's coming from Jordan Alliger from Goldman Sachs.
Jordan Alliger
Thank you.
Operator
Thank you. Your next question comes from Bruce Chan from Stifel. Your line is live.
Bruce Chan
Hi, thanks, and good morning, everybody. Maybe just wanted to zoom out here and get some high-level thoughts on, you know, demand and maybe what's assumed in your outlook here.
Bruce Chan
You know, heard from a few companies this quarter that, you know, maybe got some early indications of industrial demand recovery. Maybe you can just give us some high-level macro thoughts and talk about what you're seeing, in terms of, you know, maybe any pockets of emerging strength by, you know, segment or geography or end market or whatever.
Brian Dykes
Sure. Sure. Good morning, Bruce. As I mentioned in my earlier remarks, look, we've seen some puts and takes on the macros, right? GDP ticked down a little bit. Industrial production ticked up a little bit. I think you're right. We do see pockets of strength in the places where we're really leaning in, right? We mentioned automotive, high-tech, healthcare, industrial, where we are seeing our ability to win more and take share. We haven't seen a material shift in what we would expect for the addressable market growth on small package in the U.S., still low single digits, but we are winning where it matters to us.
Operator
Thank you. Your next question's coming from Ariel Rosa from Citigroup. Your line is live.
Brian Dykes
Sure. Thanks, Ariel. I think, you know, getting back to this, call it 50 to 100 basis points spread is healthy, right, for our business. We'll be back there by the end of this year, right? Is the way the year kind of sets out. When you think about what's going to drive that, one, we're taking actions to bring the network capacity in the U.S. back in line with the volume level. That's DCP. That's Amazon building consolidation. That's all the things that we've outlined, and those, for the most part now are done or are in progress. We feel really comfortable at our ability to get the capacity lined up in the back half.
Brian Dykes
On the revenue side, look, we've talked about this 250-350 basis points kind of range of base pricing improvement, and we've been in that range, right? That's, we've been very clear about what's mix versus fuel versus base pricing. I think we'll continue to get that kind of base pricing increase. You do that, right, through making sure that you're selling into the segments of the market that where we can, where we can deliver value to our customers, right? SMB, B2B, healthcare, that's where we're really leaning in, and that's where we're winning.
Ariel Rosa
Very helpful. Thank you.
Operator
Your next question's coming from Ken Hoexter from Bank of America. Your line is live.
Brian Dykes
Yeah. Ken, I think you're right. There is a slight delay in how things move through the supply chain, through the ports, through the TL, the LTLs and the rails. Like I said, Bruce, I would say we see incremental momentum in our B2B business, in the industrial business. Part of that's through capabilities, right, that we've been investing in, but part of it is through momentum. I would just say it has not been runaway growth that would cause us to fundamentally change our market growth assumption for the year yet. Thanks, Brian. Thanks, Carol.
Ken Hoexter
Thank you.
Operator
Thank you. Your next question is coming from Richa Harnain from Deutsche Bank.
Richa Harnain
Yeah. Thank you so much.
Operator
Thank you. Your next question's coming from Brian Ossenbeck from JPMorgan. Your line is live.
Brian Ossenbeck
Hey, good morning. Thanks for taking the questions. Maybe just two sorta quick follow-ups. Just on the mix shift, you know, I understand the increasing percentage of mix for SMB and B2B, but looks like B2B volume in absolutes was down 5%. Don't know if you can provide some color as to why that occurred and what might be moving forward here. Then, Carol, just on the transition for the USPS, sounds like it's done. Maybe not everything went back to them in terms of final mile delivery. Can you give a little bit more color on that and also just how you expect to manage their own fuel surcharge, which was kind of a big headline. You know, they never really had one in the past. I don't know if that's something you can pass through as well with that program.
Brian Dykes
That's right. Matthew, we have time for one more question.
Operator
Certainly. Our final question comes from the line of Ravi Shanker from Morgan Stanley. Your line is live.
Ravi Shanker
Very helpful. Thank you.
Brian Dykes
Yeah, that's a really important point. I think, as Carol mentioned, we are purely a pass-through, so we don't expect that this will have an impact on our financial statement.
Ravi Shanker
Understood. Thank you, Brian.
Operator
Thank you. I will now turn the floor over to your host, Mr. PJ Guido.
Transcript from April 28, 2026
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