United Parcel Service, Inc. (UPS) Earnings

Management highlights

### Completed Amazon Glide Down and Network Reconfiguration - Successfully completed the 18-month plan as designed, eliminating 2 million pieces per day of low-quality Amazon volume, reconfiguring and automating the U.S. network, and removing $4.5 billion in related expenses (with additional savings expected through the end of 2026) - Reduced nearly 30,000 operational positions in the first half of 2026, closed 45 buildings (with more closures planned for the second half), and expects $3 billion in total benefits from the initiative in 2026 - The resulting network is leaner, more automated, and more agile, with incremental volume carrying materially better economics than before the restructuring ### Technology Investments for Efficiency and Differentiation - Completed full deployment of RFID sensing technology across all U.S. delivery facilities and package cars, and is expanding deployment internationally; all packages shipped at 5,500 UPS Stores are now RFID-enabled - RFID eliminates hundreds of millions of annual manual scans and generates real-time package data, which is paired with an AI-powered digital twin of the global network to enable dynamic, near-real-time optimization of routing and planning for disruptions - These technologies improve efficiency, end-to-end visibility, and customer experience, creating a competitive differentiator ### Premium Volume Growth Focus - **SMB**: U.S. SMB average daily volume grew 4.3% year-over-year in Q2, with broad-based growth across nearly all industries. B2B Digital Access Program (DAP) average daily volume grew 34% year-over-year, and global DAP revenue hit $1.4 billion, the third consecutive quarter over $1 billion - **Healthcare**: Global healthcare revenue exceeded $3 billion for the second consecutive quarter. Added 27 new temperature-controlled cross-stock facilities to expand global cold chain capabilities; UPS is the only carrier offering end-to-end complex healthcare logistics with owned assets, enabling full control, visibility, and service quality - **Industrial & Automotive**: Expanded North American U.S.-Mexico air freight services and launched a dedicated 300+ specialist team focused on automotive and industrial manufacturing customer supply chain needs to address shifting trade patterns and supply chain disruption - International: Momentum is building in Asia, with China-U.S. trade lane returning to year-over-year growth in May 2026 and strong double-digit growth in Asia-to-Asia export volume following prior regional investments

Guidance

- UPS raised its full-year 2026 consolidated guidance based on better-than-expected first half results: new guidance is ~$91.2 billion in total revenue (up from prior outlook), ~$8.65 billion in consolidated operating profit (up from prior outlook), and ~$7.22 diluted earnings per share (up from prior outlook) - U.S. Domestic: Full-year 2026 revenue expected to be ~$60 billion (up 1% year-over-year) with an operating margin of ~7.5%. Q3 2026 expects mid-single digit average daily volume decline (reflecting seasonality and completed Amazon Glide Down), ~flat year-over-year revenue, and a 7% operating margin. Second half 2026 U.S. Domestic operating margin expected to be ~8.8%, with year-over-year margin expansion in both Q3 and Q4 - International: Full-year 2026 expects mid-single digit revenue growth driven by strong revenue per piece growth, with operating margin in the mid-teens. Q3 2026 expects mid-single digit revenue growth and operating margin between 13% and 14% - Supply Chain Solutions: Full-year 2026 expects high single-digit revenue growth driven by forwarding and healthcare logistics, with operating margin between 10% and 11%. Q3 2026 expects low double-digit year-over-year revenue growth and operating margin between 10% and 11% - Full-year 2026 capital expenditures remain guided at ~$3 billion; full-year free cash flow expected to be ~$5.5 billion (including Driver Choice Program one-time payments), and total annual dividends expected to be ~$5.4 billion (subject to Board approval)

Segment performance

1. U.S. Domestic: Generated $14.9 billion in revenue, a 6% year-over-year increase, contributing 65.35% of total consolidated revenue. It delivered $1.2 billion in operating profit, a 21% year-over-year increase, with an operating margin of 8% (up 100 basis points year-over-year). Total average daily volume declined 3.3% year-over-year, almost entirely driven by the planned Amazon Glide Down; adjusted for Amazon and other lower-yielding volume cuts, average daily volume grew year-over-year. SMB average daily volume increased 4.3% year-over-year, and SMBs made up 34.5% of total U.S. volume (up 250 basis points year-over-year). Revenue per piece grew 9.3% year-over-year, outpacing cost per piece growth by 130 basis points. 2. International: Generated $5 billion in revenue, a 12.5% year-over-year increase, contributing 21.93% of total consolidated revenue. Operating profit was $623 million, down $59 million year-over-year, with an operating margin of 12.4% (down 120 basis points year-over-year, mostly due to higher fuel costs). Total average daily volume declined 5.8% year-over-year, but China-U.S. trade lane returned to year-over-year growth starting in May 2026, and Asia-to-Asia export volume increased 13.6% year-over-year. Revenue per piece grew 18.9% year-over-year. 3. Supply Chain Solutions: Generated $2.9 billion in revenue, an 8% year-over-year increase, contributing 12.72% of total consolidated revenue. Operating profit was $291 million, up $79 million year-over-year, with an operating margin of 10.2% (up 220 basis points year-over-year, the third straight quarter of margin expansion). Forwarding revenue grew 8.1% driven by higher international air freight rates; logistics revenue grew 4.3% driven by healthcare logistics growth; UPS Digital (including Happy Returns) grew revenue over 30% year-over-year.

Risks & headwinds

- Ongoing conflict in the Middle East has driven fuel price volatility, which increased both Q2 2026 revenue and corresponding fuel costs; the conflict also required additional network redirection costs (including leased aircraft block hours) for international operations, negatively impacting international segment margins - The Teamsters union contract will be up for renegotiation by 2028, creating potential future labor uncertainty - External macro factors including ongoing trade policy changes, shifting trade patterns, tariffs, and de minimis regulation changes have created volume volatility across key trade lanes (including Canada-U.S. and Europe exports) - Increased competitive pressure from other carriers (including FedEx entering the DAP space and Amazon expanding enterprise shipping services) creates risk of customer and share erosion

Analyst Q&A

• Q: With the Amazon Glide Down complete, what gives management confidence in sustained U.S. domestic margin expansion, and is there a long-term margin target? /

  A: Automation is driving sustained productivity gains: 68.5% of U.S. volume now flows through automated buildings (up from 64% a year prior), and automated buildings have 28% lower cost per piece than non-automated facilities. Management has also right-sized network capacity, eliminating 2 million pieces per day of low-yield volume, 50 million annual operational hours, nearly 78,000 operational positions, and ~150 buildings since 2024, cutting structural network costs. Base pricing runs 250-350 basis points annually, and management maintains a 50-100 basis point spread between revenue per piece and cost per piece growth, which will drive ongoing margin accretion as the company grows premium volume.

• Q: How does UPS plan to gain SMB and B2B share against competitors targeting the same segments? /

  A: UPS differentiates through unique enabling capabilities that competitors cannot match. It is the only carrier that owns all assets in end-to-end complex healthcare cold chain logistics, delivering full control and visibility unmatched by competitors. New capabilities like RFID-enabled end-to-end package tracking have already won new high-value customers (e.g., converting a high-end jeweler from a competitor by eliminating the need for on-site security during loading and providing full origin-to-destination visibility). Additional differentiators include industry-leading box-free label-free return capabilities via Happy Returns and 5,500 UPS Store locations, and top-tier on-time delivery performance.

• Q: Following the Amazon drawdown, what is Amazon's current share of UPS revenue, and what is the expected long-term growth profile for Amazon volume relative to the rest of the business? /

  A: Amazon currently represents 9% of UPS total revenue, down 100 basis points year-over-year and down from a COVID peak of over 13%. Amazon remains an important customer, and management will continue to optimize the volume mix of Amazon business in partnership with the company, focusing on high-quality profitable volume.

• Q: What is the long-term outlook for capital expenditure levels after the network buildout is complete? /

  A: The historical 4.5-5 billion dollar annual capital spend reflected multi-year network buildout that is now largely complete. A sustainable long-term run rate is approximately 3.5% of annual revenue, so capital dollars will grow gradually as revenue grows, resulting in a structurally lower run rate than prior peak buildout periods. Management will continue to invest opportunistically in high-return growth projects, such as the recent 27 new cold chain facilities and $50 million North American air freight expansion for automotive customers.