00:00:02 · S0, S1, Carol Tomé, Romaine Bostick
[00:00:02] S0: Bloomberg Audio Studios. Podcasts, radio, news. Let's get straight to Romain Bostic, host of The Close. [00:00:11] S1: He joins us live from UPS headquarters in Atlanta with the CEO of UPS, Carol Tomei, for an exclusive interview. [00:00:16] S2: Romain. [00:00:20] S3: Thank you, Scarlett. [00:00:20] S1: Yes, we are here with Carol Tomei, fresh off the UPS's most recent earnings report, a Q3 number. that beat on several metrics and guidance, going higher for the full year. There are a lot of questions right now about the sustainability of the growth, the sustainability of the turnaround that you've orchestrated. What assurances did you give investors today that 2027 looks even better than 2026? [00:00:43] S2: Well, Romain, first, welcome to our headquarters here in Atlanta, Georgia. We're delighted to have you here. And I'm super proud of the UPS team because we did report solid results today, including a return to volume growth for our SMB and enterprise customers in the United States. And that gave us confidence to lift the guidance for the full year. In fact, we're heading into the busiest season of the year, which is the peak holiday season. And based on forecasts that we receive from our customers, we expect our volume, our average daily volume, to increase about 25% from. [00:01:17] S0: The third quarter to the fourth quarter.
00:01:17 · S0, Carol Tomé, S1, Romaine Bostick
[00:01:17] S0: The third quarter to the fourth quarter. [00:01:20] S2: So given the underlying strength of the business, we were delighted to raise both our revenue and our profit guidance for the year. And we've created now this algebraic formula of growth going into 2027, which is we'll have volume growth. [00:01:36] S0: We'll have revenue per piece growth. [00:01:38] S2: Our cost per piece will grow, but at a less growth rate than the revenue per piece. So we'll have profit and margin expansion next year. [00:01:45] S1: Well, on the revenue per piece and on that cost per piece, I mean, you had decent growth there. I think domestically it was like 6.1% or something, but cost was 5.5%. [00:01:51] S3: I mean, that's lower. [00:01:55] S1: Than obviously what you're making in revenue. But that's still a relatively small gap, only 60 basis points. And I know in the past, you and the other management have talked about a range of maybe 50 to as much as 100 basis points in terms of that differential. [00:02:07] S3: How do you get that higher? [00:02:08] S0: Well, as you know, fuel prices are up. [00:02:12] S2: We drive 5 billion miles a year and we fly a lot of planes. [00:02:16] S0: So in that cost. [00:02:17] S2: Per piece increase in the quarter was fuel, both fuel as well as the cost of purchase transportation, which is also up. So we still believe that the gap between RPP and CPP, if you will, will range between 50 and 100 basis points.
00:02:17 · Carol Tomé, S1, Romaine Bostick, S0
[00:02:17] S2: Per piece increase in the quarter was fuel, both fuel as well as the cost of purchase transportation, which is also up. So we still believe that the gap between RPP and CPP, if you will, will range between 50 and 100 basis points. [00:02:32] S1: But if we do get a moderation in gas and diesel prices, obviously that would help on the cost side. But some of your revenue per piece was also the result of fuel surcharges. I believe the CFO said something like half of that increase was directly related to fuel surcharges. [00:02:47] S3: I assume those surcharges go away if prices go down. [00:02:49] S0: Well, they will go away. [00:02:51] S2: But half of that RPP was in our base rate and mix. And if I look at the cost per piece, 100% of the growth was in fuel and purchase transportation. So if that goes down, we still have RPP growth that would cover any cost. [00:03:04] S1: There's been a lot of talk about the transformation of this company. You've been at the helm now for six plus years. You came in with a very clear mandate and you have executed on that in a lot of ways. But that execution had a lot to do with making this company to a certain extent smaller, not necessarily financially smaller, but smaller in terms of the amount of packages it moves. And I am curious as to why being a little bit leaner in that sense, in your view, is better.
00:03:04 · S1, Carol Tomé, S0
[00:03:04] S1: There's been a lot of talk about the transformation of this company. You've been at the helm now for six plus years. You came in with a very clear mandate and you have executed on that in a lot of ways. But that execution had a lot to do with making this company to a certain extent smaller, not necessarily financially smaller, but smaller in terms of the amount of packages it moves. And I am curious as to why being a little bit leaner in that sense, in your view, is better. [00:03:30] S2: So we're dispelling the old myth that all packages are created equal and that volume solves all problems, because it's just not true. Instead, we looked at our end-to-end network, our global smart integrated network and said, okay, who can we serve best. [00:03:46] S0: And serve them better than anybody else? [00:03:48] S2: And we've determined it's not a lightweight short zone box of sweaters. It's actually complex logistics, like complex healthcare, where we've made significant investments over the past six years. You know, when I got here, our healthcare revenue was less than $ 6 billion. By the end of this year, it will be more than $ 13 billion. And we've invested around the world. We have over 20 million square foot of dedicated square footage for healthcare logistics. We operate in, gosh, 36 countries. We have 273... buildings. We have coaching capabilities. We have special labeling, control towers. So we have cemented our leadership position as the number one provider of complex healthcare logistics in the world. [00:04:32] S0: It doesn't stop there.
00:04:32 · S0, Carol Tomé, S1, Romaine Bostick
[00:04:32] S0: It doesn't stop there. [00:04:32] S2: We've gotten growth in other areas as well, but this is certainly one. [00:04:36] S0: Area of focus. [00:04:36] S1: On healthcare though, are the margins materially better than the overall delivery business? [00:04:42] S0: The margins are in the low to mid teens. [00:04:44] S3: Okay. [00:04:45] S1: And you view that as a longer term growth driver for UPS overall? [00:04:50] S2: As we look at the addressable market for complex healthcare logistics globally, it's about $ 90 billion. There's lots of opportunity for growth there. And just think about what's happened with the explosion of GLP-1 drugs, and now the pharmaceutical company is going direct from manufacturer to home. [00:05:07] S0: We're delivering all of that. [00:05:09] S1: Do you have sort of a unique position in that space, meaning is this something that UPS is only capable of, or UPS and maybe FedEx and a couple others? [00:05:17] S2: It's a very attractive market and lots of carriers are attempting to get into this market, but we've invested in capabilities that provide a superior experience for our customers. And we really earned this right during the pandemic. We invested in cold chain because we knew the vaccines that were coming out would need cold chain logistics. We were the first carrier to deliver the COVID-19 vaccine. We did it with our Brown network. We delivered a billion vaccines in the first year at 99.9% effectiveness, which meant we never lost someone. [00:05:50] S0: We didn't have a temperature excursion.
00:05:50 · S0, Carol Tomé, S1, Romaine Bostick
[00:05:50] S0: We didn't have a temperature excursion. [00:05:51] S2: That gave us the authority to win in this space. [00:05:54] S0: And we've done very well with this since then. [00:05:57] S1: There's been a lot of talk about your pullback from Amazon. You laid out a plan in early 2025. the Amazon, then your single largest customer would have to be a much smaller portion, if any portion at all of the UPS business. That plan is largely complete. You dictated that to investors today. What does a post Amazon UPS look like for investors? [00:06:21] S2: Well, we're returning to growth, both volume, revenue and profit growth on a network that's much more automated and efficient. [00:06:31] S0: And so this was a difficult pivot, candidly. [00:06:34] S2: Lots of hard decisions had to be made. But we knew it was the right thing to position us for the future. Because now as we look to the future, we have assessed the addressable market to be about $ 923 billion. And that means from factory floor down. to front door. We serve every step of a supply chain, and we're going to lean into that in a meaningful way. [00:07:00] S0: But we want to also focus. [00:07:02] S2: In on the premium part of that market, which globally is about $ 535 billion. And here in the United States, It's about $ 150 billion, so lots of opportunity for us to grow in the premium space. [00:07:13] S3: Well, I am curious. [00:07:14] S1: I mean, your supply chain solutions umbrella, however you characterize it, had decent growth, I think, in the quarter. [00:07:20] S3: It did. 18% growth, roughly.