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- [00:00]
4imprint Announcer
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- [00:30]
Bloomberg Host
Bloomberg Audio
- [00:31]
Carol Tomei
Studios Podcasts Radio news shares of ups
- [00:36]
Bloomberg Host
down about 6% after the company reported earnings this morning, the company did actually beat on most of the main metrics adjusted EPS above analysts estimates revenue in the quarter above analysts estimates and the company boosting its full year sales forecast as well as providing an adjusted earnings forecast ahead of analysts estimates. A testament here to a lot of changes at the CEO has made over the last few months to wean themselves off some of the lower margin business and move deeper into some of the higher margin products and services. Pleased to say that the CEO of ups, Carol Tomashi, joins us right now on the heels of that earnings report. And Carol, I do want to start off with the guidance for the rest of the year. It looks relatively strong and I know you've talked in the past that not only 2026 would be a good year for this company, but you alluded last quarter that 2027 could potentially be even better. Are on track to see that?
- [01:32]
Carol Tomei
Well, I mean, it's good to be with you. And you know, I'm delighted to say that we launched a strategic transformation of our company 18 months ago to glide down Amazon volume and reconfigure our network and we did that and then we returned to profit and revenue growth. And as you look to the guidance for the balance of the year, we will continue to grow our profit and earnings, which gives us Runway for a really good 2027.
- [01:59]
Bloomberg Host
Talk to me a little bit about the domestic business. I mean, when I was looking at the share drop today and we spoke to some analysts, some people seem to raise some concerns here about the margins on the domestic business, why they weren't as strong as some folks were looking for as well as the guidance going forward. Is that a reflection of what you've lost from the Amazon business or is that more related to tariffs and other economic issues?
- [02:24]
Carol Tomei
Well, we were quite pleased with our margin performance in the domestic business in the second quarter. It was up 400 basis points from what we reported in the first quarter and up 100 basis points year on year. If you look at the back half of the year, we guided to continued margin expansion year over year in both the third and fourth quarter because we've added new productivity into our business to help lower the cost per piece while leaning into the segments of the market that really value our end to end capabilities like complex health care Logistics and SMB and B2B. And when you think about those segments, we saw good growth in the second quarter. Health Care reported its second $3 billion quarter in a row. SMB volume in the United States was up over 4% year on year and we're gaining share in industrial and automotive. So I'm super pleased about the progress that we're making and the results that we'll deliver.
- [03:26]
Bloomberg Host
I do want to talk about Health care in a bit, but I'm just curious though on the domestic business because I mean there is disparity between what we saw on the adjusted numbers and on the GAAP basis, which seems to suggest that some of the positive that we saw is coming from cost cuttings. But as we get into that second half of the year, and you could correct me if I'm wrong, you're saying US revenue per piece growth is going to be about 4 to 4 and a half percent in the second half. That would be down sequentially from 9 plus percent that we saw in Q2. Average daily volume is also supposed to decrease, although I think either you or the CFO alluded that that was more. Seasonal factors just kind of square the circ as to why there seems to be some deceleration with regards to the US business.
- [04:08]
Carol Tomei
Yeah, happy to do so. So first of all, on the volume side, while volume will be down year over year, that's a reflection of the Amazon glide down dynamic because while the third, if you look at the third and fourth quarter of last year, we glided down volume in the first and second quarter of this year. So the year over year comparison makes the volume look negative. But if you ignore Amazon will actually grow volum volume in our U.S. business just like we did in the second quarter. If you ignore Amazon on the RPP differences in the second quarter, we had strong RPP growth driven by solid base rates, customer mix improvements as well as fuel. And fuel was about half of that RPP growth in the second quarter. There's a lot of volatility in the fuel market. As you know, we think some of the strength and fuel will carry, but not all of it. So we are expecting not to see the kind of benefits in the back half of the year as we did in the second quarter. We're also up against a couple of tough comparisons year on year because we made some price adjustments last year that aren't repeating this year. So all in all, as long as we have our RPP growing faster than our cost per piece, well, we're going to expand our margin with regards to
- [05:28]
Bloomberg Host
the relationship with Amazon. You said on the call you're basically about 9% of your revenues now for from Amazon. That's significantly lower than the 13, 14% that we saw a few years ago. Are you planning to sort of get that share down even further? Is there some sort of floor either that you want or a contractual floor that maybe you have to abide by?
- [05:50]
Carol Tomei
Our glide down is behind us. We're all about focusing on growth, optimizing Amazon volume in our in our network. It's an important customer for us, but we're going to grow in other areas, segments. So where the percentage of Amazon volume lands up will be a function of growth in other segments. And we'll report on that as we go.
- [06:08]
Bloomberg Host
So talk about the supply chain solutions you kind of alluded to. Health care, cold chain, a lot of that decent growth there. I think supply chain was 8% higher. Margins are pretty healthy in the double, low double digits as well. Is that the growth story that investors should be focusing on?
- [06:24]
Carol Tomei
Complex health care logistics is a big growth story for UPS because we are the only carrier that owns all the assets necessary to provide control and visibility for this very important package. It's actually not a package, it's a patient. And so it is a growth story for us. We are growing faster than the market. And oh, by the way, the market's pretty growthy. The market's growing around 6%. We're growing faster than the market. We're doing that organically as well as through the aid of a few acquisitions we've made over the past several years that are gaining momentum. So if you look at the profitability of our supply chain business in the second quarter, it was driven in large part the year over year change by health care. But we also saw good profitability improvement in our digital business. And this would include roadie and happy
- [07:15]
Bloomberg Host
returns with regards to the digital business and also more importantly, just some of the changes that you made to the warehouses with regards to automation. How much does that help your cost structure going forward, particularly in the context of meeting some of the guidance that you've given?
- [07:31]
Carol Tomei
So we've invested in automation in our network in a meaningful way. Get this, at the end of the second quarter, 68 and a half percent of the volume that flowed through our network in the United States went through an automated building. That's up 400 basis points from a year ago. And to put that in perspective, that meant we had over 330 million packages going through an automated process, more than last year. Why does it matter? The cost per piece in an Automated building is 28% lower than in a non automated or conventional building. So that's why we really focused on automation, so that we can drive productivity going forward and capacity. So as growth comes back into the network, we've got capacity to manage that growth.
- [08:16]
Bloomberg Host
I have to ask you get your just kind of general view on the economy, Carol. Obviously you move a ton of our economy effectively. I think I saw a stat that like UPS is like 3% of global GDP in terms of what goes through your hands in one way or another. Is the economy healthy? The global economy right now healthy enough.
- [08:36]
Carol Tomei
You know, as we look at the global economy we see elements of recovery. In fact, our most profitable trade lane outside of the United States States is China to us. And we saw that return to growth beginning in May. In fact, that trade lane grew by 22% in the second quarter. If we look at Asia to Asia trade lanes, we saw volume growth there as well up 14%. So that gives you a sense that there certainly is some strength outside of the U.S. if you look at those Asia to Asia trade lines and then coming back into to the United States, the consumer seems pretty resilient. And as the consumer goes, so does the economy. And the consumer seems pretty resilient to us.
- [09:20]
Bloomberg Host
Final question Carol. And this kind of has to do with this idea of making sure that investors sort of feel comfortable with what you've delivered. And I know the share drop, the share move that we've seen today is just a one day knee jerk reaction. There are a lot of people that look at the free cash flow that you had in the quarter, which is in the millions. They look at the dividend obligations that you have going forward, which is in the billions. When does that kind of right size itself that maybe give investors a little bit more comfort that they are going to get at least what they think they deserve.
- [09:51]
Carol Tomei
So protecting the dividend is is job number one for ups. And I'm pleased with the improvements that we're seeing in our cash flow generation. The second quarter had a one time hit because of a driver choice buyout program we launched to out drivers from their contracts here at UPS. I came with $1 billion cost but it was worth it. So that's behind us and we look at the cash flow projections for the full year, we will generate more cash than our dividend and as the margin continues to grow, so will the cash.
- [10:29]
Bloomberg Host
Carol, really appreciate you taking time for us. Obviously you've done a wonderful job there and hope to talk to you again soon. Carol Tomei there, the CEO of ups coming off another beaten raise quarter earlier this morning.
- [10:41]
4imprint Announcer
Whatever your goal, trade show giveaways, client Gifts or Team Gear 4 imprint has the promo products to match with thousands of options from apparel and drinkware to tech and totes. It's easy to find the right fit for your brand and budget. With standout choices at every price point and with their 360 degree guarantee, you can before Imprint certain your order will show up just right, right on time. Explore more@fourimprint.com 4imprint for certain.