United Parcel Service, Inc. Class B 2026 Q3 Earnings Call

Good morning, and welcome to the UPS third 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 third quarter of 2026, GAAP results include a net charge of $279 million, or $0.32 per diluted share, comprised of after-tax transformation strategy costs of $130 million, as well as a $182 million charge associated with a goodwill impairment in Supply Chain Solutions, partially offset by a gain on sale of MD-11 assets of $33 million. 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. 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.

Now I'll turn the call over to Carol.

Thank you, PJ, and good morning. I'd like to begin by celebrating some important milestones that demonstrate the strength of our global integrated network. This year, UPS celebrates 50 years in Europe, 40 years at our Cologne air hub in Germany, 35 years in Mexico, and 25 years of flying into China. These milestones represent decades of service, commitment, and progress. To UPSers across these markets and around the world, thank you for delivering for our customers, strengthening our company, and moving UPS forward every day. Moving to our results, the third quarter marked another quarter of strong performance that exceeded our expectations. Revenue grew across all three segments, driving consolidated revenue to $22.9 billion, up 6.7% from last year. Consolidated operating profit was $2.1 billion.

The U.S. Domestic segment delivered its second consecutive quarter of strong year-over-year operating profit growth, increasing over 14% versus the third quarter of last year. In the U.S., we are now past the inflection point on several key elements of our strategy, with clear evidence in our volume, operating profit, and operating margin performance. Average daily volume from SMB and enterprise customers increased 1.8% year-over-year. For the second consecutive quarter, revenue per piece growth outpaced cost per piece growth, contributing to 60 basis points of year-over-year operating margin expansion in the third quarter. In International, we returned to year-over-year operating profit growth for the first time since the 2025 U.S. trade policy changes. The momentum we saw in the second quarter across the China to U.S. and Asia to Asia trade lanes continued in the third quarter, supported by investments we've made across the region.

In addition, U.S. inbound volume rebounded in September, further strengthening our third-quarter performance. In Supply Chain Solutions, both forwarding and logistics grew revenue year-over-year, driven by demand from customers in high tech, healthcare, manufacturing, and automotive. Taken together, these results show that our strategy is working. We're driving more premium growth, improving revenue quality and mix, and creating greater operating leverage through a more efficient network. All of this is strengthening the underlying performance of our business. As many of you saw, in September, we announced a new global operating model. Under our new model, Matt Guffey leads our U.S. Domestic businesses, including Small Package and growth enablers like The UPS Store, UPS Capital, Roadie, Happy Returns, and Mail Innovations. Wilfredo Ramos is responsible for International Small Package, Global Healthcare, and our forwarding and logistics business.

Nando Cesarone drives our global network, leading global air, network automation, and surface transportation operations that power our integrated network. This new model enables UPS to serve customers with greater consistency, agility, and scale. Under this approach, UPS is standardizing critical operational processes across geographies while maintaining the flexibility necessary to meet the unique needs of local markets. We believe this structure will unlock new synergies across our businesses and accelerate premium growth. A good example of this alignment can be seen in The UPS Store, Happy Returns, and UPS Capital. Approximately 10% of total U.S. Small Package volume originates through The UPS Store network, and that volume has grown by roughly 6% annually since 2024. Through Happy Returns, SMB and enterprise customers can offer consumers a convenient no-box, no-label returns experience. Every Happy Returns package flows through the UPS Small Package Network.

By the end of this year, Happy Returns volume is expected to have more than tripled since we acquired them in 2023. UPS Capital extends our value proposition beyond transportation. Through solutions like UPS Secure Commerce, we use data and AI to help customers reduce fraud, protect high-value shipments, and make smarter, more informed supply chain decisions. Outside the U.S., we're focused on helping customers solve increasingly complex global supply chain needs while expanding our premium B2B business. on October 15th, we officially opened our new air hub at Clark International Airport in the Philippines, improving transit times across more than 1,100 trade lanes and enabling next-business-day connectivity between key markets in Asia Pacific, India, Europe, and the United States. This investment strengthens our ability to serve customers in premium global industries such as manufacturing, high tech, and healthcare.

In Europe, we recently added a 129,000 square foot multifunctional facility to our network. Strategically located in Amsterdam, the facility brings freight forwarding, customs brokerage, and healthcare cold chain capabilities together under one roof. We designed this facility to support our high-value B2B customers. Before we turn to peak, let me highlight our third quarter performance in two important growth areas: healthcare and SMBs. First, healthcare revenue exceeded $3 billion for the third consecutive quarter, with year-over-year growth in every segment. Second, SMBs, including platforms, represented 35.1% of total U.S. volume in the third quarter, up approximately 240 basis points from last year. In the U.S., SMB average daily volume grew 3.7% year over year, driven by continued momentum in our Digital Access Program, known as DAP. Global DAP revenue reached $1.4 billion. Importantly, the DAP mix continued to shift toward more premium volume.

For the first time, air services and ground commercial represented nearly 30% of total DAP volume in the third quarter. Turning to the holiday season, U.S. consumers remain resilient, and the outlook for holiday demand is strong. Industry forecasts for holiday online retail sales project an average increase of approximately 9% compared to last year. A little over 100 U.S. customers account for approximately 80% of our peak surge. Based on their forecasts, we expect average daily volume to increase approximately 25% from the third quarter to the fourth quarter. That sequential increase is consistent with last year. However, fourth quarter U.S. average daily volume is expected to be lower year over year, reflecting the deliberate actions we took earlier in the year to reduce Amazon volume. As we head into peak, our network is more automated, more efficient, and better positioned than ever to handle the holiday surge.

We'll add variable capacity where needed, but the investments we've made in our network enable us to operate with fewer vehicle rentals and aircraft leases, and nearly 70% of all packages will flow through an automated process. As we've discussed, we are moving from a scanning to a sensing network. Our RFID capabilities are increasing productivity with little to no scanning while improving package visibility and on-time delivery. By the end of the year, we expect to have delivered more than 4 billion RFID-enabled packages. Beyond being ready operationally, we're also finding new ways to make the holiday experience better for our customers. We recently launched Protected Delivery, which adds an extra layer of security for high-value shipments by requiring a PIN before the package is released. We're adding a little holiday spirit with special holiday-themed express packaging. In short, we are ready for peak.

And while on-time service is important every day of the year, it matters even more during peak when our customers are counting on us to deliver for their customers. We've been the industry leader in on-time service during peak for the past 8 years. With our network, our know-how, and the commitment of UPSers, we're ready to make it 9. As I wrap up, let me share our updated outlook for the year. We expect the momentum we've built to continue, giving us the confidence to raise our full-year outlook. For the full year 2026, we now expect consolidated revenue of approximately $92.6 billion and consolidated operating profit of approximately $8.75 billion. Brian will provide more details on our outlook in a moment. Let me close with this. Real change takes courage. It takes courage to pivot when the path you've been on is familiar.

It takes courage to make difficult choices when you know there will be pain along the way, and it takes conviction to stay the course before the results are fully visible. We've experienced all of that, but now we're seeing the strategy come to life. We're seeing the proof points in our business, and we're proving something we believed in from the beginning. Better is truly better than bigger. We still have work to do, but we've moved through an important inflection point. We know where we're going. We have momentum behind us, and I couldn't be more confident in the future we're building for UPS. Our performance over the last two quarters demonstrates that our premium growth strategy is working, positioning us to return to revenue, operating profit, and EPS growth for the full year 2026. With momentum building, we expect continued progress ahead.