Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Through our Customer First, People Led, Innovation Driven strategy we are investing to grow in the premium parts of the market and drive efficiency across our network. We are focused on the parts of the market that value our end-to-end integrated network, including healthcare, commercial shippers and small- and medium-sized businesses ("SMBs"). Through our Network of the Future initiative, we are transforming our network by combining physical and digital capabilities, including our smart package smart facility RFID solution, to streamline our operations. We are also leveraging technology to add new capabilities and expand our addressable market.

During the first quarter, we took a number of steps in furtherance of this strategy. For example, we expanded our no box, no label returns service that combines the reach and capabilities of The UPS Store and Happy Returns, and we launched Roadie XD, adding capabilities for big and bulky long-zone deliveries for items that are incompatible with our small package network. Additionally, we continued to develop capabilities to enhance our SMB customer experience. In furtherance of our healthcare strategy, we opened a new facility at our global air hub specifically designed for complex healthcare shipments. For the remainder of 2024, we expect to continue investment in our network to drive further operational efficiencies.

On April 1, 2024, we announced that we entered into an agreement to expand our relationship with the U.S. Postal Service ("USPS"), providing for UPS to become the USPS primary air cargo provider within the United States.

We have two reportable segments: U.S. Domestic Package and International Package, which are together referred to as our global small package operations. Our remaining businesses are reported as Supply Chain Solutions.

During the first quarter of 2024, the macroeconomic environment remained challenging. Persistent soft demand, lack of growth in industrial production and continuing inflationary pressures contributed to volume declines in our global small package operations, although we experienced pockets of growth in certain markets and trade lanes. In Supply Chain Solutions, our freight forwarding businesses continued to be negatively impacted by soft demand and market overcapacity. Somewhat offsetting this was increased revenue in our logistics businesses, driven by growth in our healthcare operations and the impact of the acquisition of MNX Global Logistics in the fourth quarter of 2023.

We expect our second quarter earnings to be lower relative to 2023, primarily due to the higher labor costs associated with the first year of the Teamsters contract. However, we anticipate a return to operating profit growth during the second half of 2024.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Highlights of our consolidated results, which are discussed in more detail below, include:


	Three Months Ended March 31,						Change
	2024			2023			$		%
Revenue (in millions)	$	21,706		$	22,925		$	(1,219)	(5.3)	%
Operating Expenses (in millions)	20,093			20,384			(291)		(1.4)	%
Operating Profit (in millions)	$	1,613		$	2,541		$	(928)	(36.5)	%
Operating Margin	7.4		%	11.1		%
Net Income (in millions)	$	1,113		$	1,895		$	(782)	(41.3)	%
Basic Earnings Per Share	$	1.30		$	2.20		$	(0.90)	(40.9)	%
Diluted Earnings Per Share	$	1.30		$	2.19		$	(0.89)	(40.6)	%

Operating Days	63			64
Average Daily Package Volume (in thousands)	21,199			21,989					(3.6)	%
Average Revenue Per Piece	$	13.73		$	13.74		$	(0.01)	(0.1)	%

Average daily package volume in our global small package operations decreased, with declines in both commercial and residential shipments across all of our product segments. These declines were primarily the result of the challenging macroeconomic conditions.
Revenue declined as well, driven by lower volume and relatively flat revenue per piece.
Operating expenses decreased, due to a reduction in purchased transportation in all segments and reductions in fuel expenses in our small package operations, as well as the impact of our ongoing productivity initiatives.
Operating profit and operating margin decreased as revenue declines were greater than operating expense reductions.
We reported net income of $1.1 billion and diluted earnings per share of $1.30. Adjusted diluted earnings per share were $1.43 after adjusting for the after-tax impacts of:

◦transformation and other costs of $75 million, or $0.09 per diluted share, and

◦asset impairment charges of $35 million, or $0.04 per diluted share.

Within our segments, U.S. Domestic Package revenues and expenses were primarily impacted by the matters described above, with expense decreases partially offset by increases in union workforce compensation and benefits expense.

International Package segment revenues were also impacted by declines in demand related surcharges and currency fluctuations, partially offset by revenue per piece growth due to increases in base rates and changes in product and customer mix.

In Supply Chain Solutions, revenue decreases were driven by volume and market rate declines in Forwarding, somewhat offset by growth in our Logistics businesses. Expenses decreased primarily due to lower purchased transportation expense in Forwarding, partially offset by expense increases within Logistics.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Supplemental Information - Items Affecting Comparability

We supplement the reporting of our financial information determined under generally accepted accounting principles in the United States ("GAAP") with certain non-GAAP financial measures. Non-GAAP financial measures exclude costs or charges that we do not consider a part of underlying business performance when monitoring and evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards. As a result, we believe excluding the impact of these items better enables users of our financial statements to view and evaluate underlying business performance from the perspective of management.

Adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our adjusted financial measures do not represent a comprehensive basis of accounting and therefore may not be comparable to similarly titled measures reported by other companies. Adjusted amounts reflect the following (in millions):


	Three Months Ended March 31,
Non-GAAP Adjustments		2024		2023
Operating Expenses:
Transformation and Other Costs		$	86	$	3
Asset Impairment Charges		48		8
Total Adjustments to Operating Expenses		$	134	$	11




Total Adjustments to Income Before Income Taxes		$	134	$	11

Income Tax (Benefit) Expense:
Transformation and Other Costs		$	(11)	$	—
Asset Impairment Charges		(13)		(2)
Total Adjustments to Income Tax (Benefit) Expense		$	(24)	$	(2)

Total Adjustments to Net Income		$	110	$	9

The income tax impacts of these items are calculated at the statutory tax rates applicable in each tax jurisdiction.

Transformation and Other Costs, and Asset Impairment Charges

We supplement the presentation of our operating profit, operating margin, income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of charges related to transformation and other activities, and asset impairments. For more information regarding transformation activity charges, see note 17 to the unaudited, consolidated financial statements, for other charges, see note 11 to the unaudited, consolidated financial statements, and for asset impairment charges, see note 8 to the unaudited, consolidated financial statements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Defined Benefit Pension and Postretirement Medical Plan Gains and Losses

We incur certain employment-related expenses associated with pension and postretirement medical benefits. These pension and postretirement medical benefits costs for company-sponsored defined benefit plans are calculated using various actuarial assumptions and methodologies, including discount rates, expected returns on plan assets, healthcare cost trend rates, inflation, compensation increase rates, mortality rates and coordination of benefits with plans not sponsored by UPS. Actuarial assumptions are reviewed on an annual basis, unless circumstances require an interim remeasurement of any of our plans.

We recognize changes in the fair value of plan assets and net actuarial gains and losses in excess of a 10% corridor (defined as 10% of the greater of the fair value of plan assets or the plan's projected benefit obligation), as well as gains and losses resulting from plan curtailments and settlements, for our pension and postretirement defined benefit plans immediately as part of Investment income and other in the statements of consolidated income. We supplement the presentation of our income before income taxes, net income and earnings per share with adjusted measures that exclude the impact of these gains and losses and the related income tax effects. We believe excluding these defined benefit pension and postretirement medical plan gains and losses provides important supplemental information by removing the volatility associated with plan amendments and short-term changes in market interest rates, equity values and similar factors.

For additional information, see note 7 to the unaudited, consolidated financial statements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

Results of Operations - Segment Review

The results and discussions that follow are reflective of how management monitors and evaluates the performance of our segments as defined in note 13 to the unaudited, consolidated financial statements.

Certain operating expenses are allocated between our reporting segments using activity-based costing methods. These activity-based costing methods require us to make estimates that impact the amount of each expense category that is attributed to each segment. Changes in these estimates would directly impact the amount of expense allocated to each segment and therefore the operating profit of each reporting segment. Our allocation methodologies are refined periodically, or as necessary to reflect changes in our businesses. While there were no significant changes to our allocation methodologies in the first quarter of 2024, we expect additional air cargo volumes from our recently-announced agreement with the USPS will result in a greater share of air network expense being allocated to Supply Chain Solutions beginning in the second quarter of 2024.

As a normal part of managing our air network, we routinely idle aircraft and engines temporarily for maintenance or to adjust network capacity. As a result of the reduction in volumes experienced during the quarter, we temporarily idled certain aircraft within our network in order to better match capacity with current demand. Temporarily idled assets are classified as held-and-used, and we continue to record depreciation expense for these assets. As of March 31, 2024, we had eight aircraft temporarily idled for an average period of approximately two months. We expect these aircraft to return to revenue service during 2024.

We test goodwill and other indefinite-lived intangible assets for impairment annually at July 1 and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying value thereof may be impaired. Testing goodwill and other indefinite-lived intangible assets for impairment requires that we make a number of significant assumptions, including assumptions related to future revenues, costs, capital expenditures, working capital, our cost of capital and market comparables. We are also required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.

Challenging macroeconomic and uncertain geopolitical conditions continue to impact demand for our services. While we do not believe it is more likely than not that our reporting units’ fair values are less than their carrying values as of March 31, 2024, these external conditions or other factors, including market comparables, may negatively impact certain estimates and assumptions that we use in developing our reporting units' fair values. Such impacts may be more pronounced for reporting units whose fair values do not significantly exceed their carrying values.

As of March 31, 2024, none of our reporting units had indications that an impairment was more likely than not. Approximately $1.5 billion of our consolidated goodwill balance of $4.8 billion is represented by our Global Freight Forwarding, Coyote and Roadie reporting units which, based on our quarterly monitoring, are exhibiting a limited excess of fair value above carrying value and reflect a greater risk of an impairment occurring in future periods. We do not expect any impairment would have a significant impact on our consolidated financial position, results of operations or cash flows.

Actual reporting unit performance, revisions to our forecasts of future performance, market factors, changes in estimates or assumptions in connection with our annual testing, or a combination thereof could result in an impairment charge in one or more of our reporting units during a future period. We continue to monitor business performance and external factors affecting our reporting units.

Additionally, as of March 31, 2024, the estimated fair value of the indefinite-lived trade name associated with our truckload brokerage business, Coyote, remained greater than its carrying value by less than 10 percent. The carrying value of this trade name is $89 million. During the quarter, our truckload brokerage business continued to be negatively impacted by market conditions, which resulted in revenue declines. We continue to monitor business performance and external factors affecting our valuation assumptions for this trade name. As previously disclosed, we are continuing to evaluate strategic alternatives relating to this business.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

U.S. Domestic Package


	Three Months Ended March 31,								Change
2024				2023				$			%
Average Daily Package Volume (in thousands):
Next Day Air	1,590				1,737							(8.5)	%
Deferred	1,047				1,139							(8.1)	%
Ground	15,438				15,796							(2.3)	%
Total Average Daily Package Volume	18,075				18,672							(3.2)	%
Average Revenue Per Piece:
Next Day Air	$	23.12			$	22.14			$	0.98		4.4	%
Deferred	17.53				16.38				1.15			7.0	%
Ground	11.07				11.21				(0.14)			(1.2)	%
Total Average Revenue Per Piece	$	12.50			$	12.54			$	(0.04)		(0.3)	%
Operating Days in Period	63				64
Revenue (in millions):
Next Day Air	$	2,316			$	2,461			$	(145)		(5.9)	%
Deferred	1,156				1,194				(38)			(3.2)	%
Ground	10,762				11,332				(570)			(5.0)	%
Total Revenue	$	14,234			$	14,987			$	(753)		(5.0)	%
Operating Expenses (in millions):
Operating Expenses	$	13,409			$	13,521			$	(112)		(0.8)	%
Transformation Costs	(9)				(22)				13			(59.1)	%
Asset Impairment Charges	(5)				—				(5)			N/A
Adjusted Operating Expense	$	13,395			$	13,499			$	(104)		(0.8)	%
Operating Profit (in millions) and Operating Margin:
Operating Profit	$	825			$	1,466			$	(641)		(43.7)	%
Adjusted Operating Profit	$	839			$	1,488			$	(649)		(43.6)	%
Operating Margin	5.8		%		9.8		%
Adjusted Operating Margin	5.9		%		9.9		%

Revenue

The change in revenue was due to the following:


	Volume		Rates / Product Mix		Fuel Surcharge		Total Revenue Change
Revenue Change Drivers:
First quarter 2024 vs. 2023	(4.2)	%	0.4	%	(1.2)	%	(5.0)	%

Revenue was also negatively impacted by having one less operating day in the first quarter of 2024.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Volume

Average daily volume decreased, with reductions in both residential and commercial volume. Challenging macroeconomic conditions, including weakness in manufacturing output, drove the overall volume decline. We anticipate that year-over-year average daily volume will increase each quarter for the remainder of 2024.

Business-to-consumer volume declined 1.5% in the quarter as a result of the factors discussed above, with declines from both large customers and SMBs.

Business-to-business volume declined 5.5% in the quarter for the reasons described above, driven by declines across a number of sectors including retail, technology and manufacturing. Returns volume increased in the quarter, partially attributable to our addressable market expansion with capabilities like no box, no label returns through Happy Returns and the convenience of our The UPS Store locations.

Within our Air products, average daily volume decreases were driven by continued execution under the contract terms with our largest customer as planned, as well as by the impact of other customers making cost trade-offs to our ground network.

Average daily volumes for Ground commercial shipments decreased by 5.6%, due to the general economic conditions discussed above. Overall Ground residential volumes were relatively flat, as the decreases were offset by a 10.8% increase in SurePost volume from large customers. We expect volume to increase in the second quarter, driven by anticipated volume from large customers.

Revenue Per Piece

In December 2023, we implemented an average 5.9% net increase in base and accessorial rates for both our Air and Ground products. Revenue per piece from our Air products increased for the quarter, while revenue per piece from our Ground products declined. The increase in base and accessorial rates favorably impacted revenue per piece from both Air and Ground products, although it was partially offset by decreases in fuel surcharge revenues and average billable weight per piece, coupled with an unfavorable shift in product mix within our Ground products.

We continue to execute on pricing and revenue quality initiatives within our strategy, and anticipate revenue per piece will remain relatively flat in the second quarter before returning to growth during the second half of 2024.

Fuel Surcharges

We apply a fuel surcharge on our domestic air and ground services that adjusts weekly. Our air fuel surcharge is based on the U.S. Department of Energy's ("DOE") Gulf Coast spot price for a gallon of kerosene-type fuel, and our ground fuel surcharge is based on the DOE's On-Highway Diesel Fuel price.

Fuel surcharge revenue decreased $184 million for the quarter, driven by reductions in price per gallon and the impact of lower volumes. We expect fuel surcharge revenue to increase in the second quarter, primarily due to volume growth and the impact of higher surcharge modifiers.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Operating Expenses

Operating expenses and adjusted operating expenses decreased for the quarter. The costs of operating our integrated air and ground network decreased $291 million, and other operating costs decreased $224 million. In addition to the impact of one less operating day in 2024, the decrease in operating expenses was primarily due to:

A reduction in purchased transportation costs and aircraft block hours, resulting from lower overall volumes and the impact of network optimization initiatives, which drove a reduction in ground volume handled by third-party carriers.
Lower fuel expense driven by lower volume and decreases in the price of jet fuel, diesel and gasoline. We expect fuel expense to remain relatively flat in the second quarter of 2024.

These reductions were partially offset by increases of $311 million in pickup and delivery costs and $100 million in sortation costs that were driven by increased compensation and benefits expense for our union workforce. Compensation expense increased due to the contractual rates under our Teamsters contract, partially offset by a reduction in direct labor hours. Contractual rate increases for contributions to multiemployer benefit plans drove the increase in benefits expense.

Total cost per piece increased 4.2% for the quarter and adjusted cost per piece increased 4.1%, as the reduction in volume more than offset the decrease in overall expenses. We anticipate the cost per piece growth rate will increase further in the second quarter and then moderate for the remainder of the year.

Operating Profit and Margin

As a result of the factors described above, revenue declines were greater than operating expense reductions and operating profit decreased $641 million in the first quarter, with operating margin decreasing 400 basis points to 5.8%. Adjusted operating profit decreased $649 million, with adjusted operating margin decreasing 400 basis points to 5.9%.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

International Package


	Three Months Ended March 31,	Change
		2024			2023			$		%
Average Daily Package Volume (in thousands):
Domestic		1,503			1,635					(8.1)	%
Export		1,621			1,682					(3.6)	%
Total Average Daily Package Volume		3,124			3,317					(5.8)	%
Average Revenue Per Piece:
Domestic		$	8.01		$	7.59		$	0.42	5.5	%
Export		32.80			33.00			(0.20)		(0.6)	%
Total Average Revenue Per Piece		$	20.87		$	20.47		$	0.40	2.0	%
Operating Days in Period		63			64
Revenue (in millions):
Domestic		$	758		$	794		$	(36)	(4.5)	%
Export		3,350			3,552			(202)		(5.7)	%
Cargo and Other		148			197			(49)		(24.9)	%
Total Revenue		$	4,256		$	4,543		$	(287)	(6.3)	%
Operating Expenses (in millions):
Operating Expenses		$	3,600		$	3,715		$	(115)	(3.1)	%
Transformation Costs		(24)			22			(46)		N/A
Asset Impairment Charges		(2)			—			(2)		N/A
Adjusted Operating Expenses		$	3,574		$	3,737		$	(163)	(4.4)	%
Operating Profit (in millions) and Operating Margin:
Operating Profit		$	656		$	828		$	(172)	(20.8)	%
Adjusted Operating Profit		$	682		$	806		$	(124)	(15.4)	%
Operating Margin		15.4		%	18.2		%
Adjusted Operating Margin		16.0		%	17.7		%
Currency Benefit / (Cost) – (in millions)*:
Revenue								$	(25)
Operating Expenses								(2)
Operating Profit								$	(27)
* Net of currency hedging; amount represents the change in currency translation compared to the prior year.

Revenue

The change in revenue was due to the following:


	Volume		Rates / Product Mix		Fuel Surcharge		Currency		Total Revenue Change
Revenue Change Drivers:
First quarter 2024 vs. 2023	(6.0)	%	1.6	%	(1.3)	%	(0.6)	%	(6.3)	%

Revenue was also negatively impacted by having one less operating day in the first quarter of 2024.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Volume

Average daily volume for both export and domestic products decreased in the quarter. Business-to-consumer volume decreased 11.1% and business-to-business volume decreased 3.7%. Challenging economic conditions and geopolitical factors contributed to the volume declines. Volume declines were primarily attributable to SMBs, although volume from large customers also declined, with declines driven by the retail and manufacturing sectors, while the technology sector exhibited moderate volume growth. We expect year-over-year average daily volume to be relatively flat in the second quarter and to improve in the second half of the year, dependent on an improvement in global macroeconomic conditions.

Export volume decreased for the quarter, primarily driven by declines on intra-Europe trade lanes. These declines were partially offset by increases on the Americas to U.S. trade lanes, as manufacturing and distribution moves closer to the U.S. consumer market. We also experienced volume improvements on the China to U.S. trade lane during the quarter. The intra-Europe volume decline was primarily due to lower consumer spending as a result of economic conditions.

Our premium products experienced volume declines of 9.6% for the quarter, primarily in our Worldwide and Transborder Express Saver products. These declines resulted from continuing shifts in customer product preferences. Volume in our non-premium products decreased 1.6% for the quarter, driven by declines in our Transborder Standard product, primarily within Europe. The declines in both our premium and non-premium products were due to the macroeconomic conditions described above.

Domestic volume declined in the quarter, with the largest declines in Germany, Canada and the United Kingdom as challenging economic conditions in those countries reduced consumer spending.

Revenue Per Piece

In December 2023, we implemented an average 5.9% net increase in base and accessorial rates for international shipments originating in the United States. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.

Total revenue per piece increased 2.0% for the quarter, primarily due to base rate increases. This was partially offset by declines in fuel and demand-related surcharges, as well as unfavorable currency movements. Excluding the impact of currency, revenue per piece increased 2.5% for the quarter. We anticipate overall revenue per piece growth will be relatively flat in the second quarter and will decline in the second half of the year due to the continued shift to non-premium products.

Export revenue per piece decreased 0.6% for the quarter. The decrease was primarily attributable to changes in product mix due to the shifts in customer preferences. Declines in revenue per piece were mostly offset by base rate increases. Excluding the impact of currency, export revenue per piece remained flat relative to last year.

Domestic revenue per piece increased 5.5% for the quarter, primarily due to the rate increases discussed above. Excluding the impact of currency, domestic revenue per piece increased 6.1% for the quarter.

Fuel Surcharges

The fuel surcharge we apply to international air services originating inside or outside the U.S. is largely indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-type jet fuel. The fuel surcharges for ground services originating outside the U.S. are indexed to fuel prices in the region or country where the shipment originates.

Total international fuel surcharge revenue decreased $59 million for the quarter, due to a decrease in price per gallon and volume declines, partially offset by higher surcharge modifiers. Based on our current commodity market outlook, we expect fuel surcharge revenue will increase in the second quarter.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Operating Expenses

Operating expenses and adjusted operating expenses decreased for the quarter, primarily due to:

Reductions in the cost of operating our integrated air and ground network, which decreased $125 million, driven by lower fuel prices and reductions in air charters and aircraft block hours.
Lower pickup and delivery costs, which decreased $22 million as a result of lower volumes and the impact of cost management initiatives.

On an unadjusted basis, these reductions were partially offset by the impact of year-over-year increases in employee separation costs as we continued to right-size our business.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $172 million for the quarter, with operating margin decreasing 280 basis points to 15.4%. Adjusted operating profit decreased $124 million and adjusted operating margin decreased 170 basis points to 16.0%.

Increased geopolitical uncertainty continues to impact volumes in our International Package segment. As previously disclosed, substantially all of our operations in Russia and Belarus have been suspended, and we expect to complete the liquidation of our Small Package and Forwarding and Logistics subsidiaries in these countries by end of 2024. Substantially all of our operations in Ukraine remain indefinitely suspended. These actions have not had, and are not expected to have, a material impact on us.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Supply Chain Solutions


	Three Months Ended March 31,	Change
		2024			2023			$		%
Revenue (in millions):
Forwarding		$	1,280		$	1,514		$	(234)	(15.5)	%
Logistics		1,542			1,410			132		9.4	%
Other		394			471			(77)		(16.3)	%
Total Revenue		$	3,216		$	3,395		$	(179)	(5.3)	%
Operating Expenses (in millions):
Operating Expenses		$	3,084		$	3,148		$	(64)	(2.0)	%
Transformation and Other Costs		(53)			(3)			(50)		N/M
Asset Impairment Charges		(41)			(8)			(33)		412.5	%
Adjusted Operating Expenses:		$	2,990		$	3,137		$	(147)	(4.7)	%
Operating Profit (in millions) and Operating Margin:
Operating Profit		$	132		$	247		$	(115)	(46.6)	%
Adjusted Operating Profit		$	226		$	258		$	(32)	(12.4)	%
Operating Margin		4.1		%	7.3		%
Adjusted Operating Margin		7.0		%	7.6		%
Currency Benefit / (Cost) – (in millions)*:
Revenue								$	(14)
Operating Expenses								20
Operating Profit								$	6
* Amount represents the change in currency translation compared to the prior year.


	Three Months Ended March 31,	Change
		2024		2023		$		%
Adjustments to Operating Expenses (in millions):
Transformation and Other Costs
Forwarding		$	7	$	1	$	6	600.0	%
Logistics		6		2		4		200.0	%
Other		40		—		40		N/A
Total Transformation and Other Costs		$	53	$	3	$	50	N/M
Asset Impairment Charges
Forwarding		$	—	$	8	$	(8)	(100.0)	%
Logistics		41		—		41		N/A
Other		—		—		—		—	%
Total Asset Impairment Charges		$	41	$	8	$	33	412.5	%
Total Adjustments to Operating Expenses		$	94	$	11	$	83	754.5	%

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Revenue

Total revenue in Supply Chain Solutions decreased for the quarter. This was primarily due to declines in our Forwarding business, with both truckload brokerage and freight forwarding revenues decreasing, and declines within certain of our other businesses. These declines were partially offset by revenue growth in our Logistics businesses.

Revenue in our truckload brokerage business decreased $148 million due to lower volumes and a decline in market rates. These decreases were partially offset by volume increases from SMBs as a result of our revenue quality initiatives.
International airfreight revenue decreased approximately $53 million due to continued weakness in market demand, impacting both volumes and rates. We expect improvements in market demand and tightening capacity, particularly on Asia export lanes, which are expected to lead to revenue growth in the second half of 2024.
The remaining reduction in revenue was primarily attributable to our ocean freight forwarding business, driven by a change in product mix that drove growth in volume but at lower rates. We expect revenue to remain challenged in the second quarter as capacity increases are expected to continue to exceed demand.

Within our Logistics businesses, revenue increased $132 million. The acquisition of MNX Global Logistics in the fourth quarter of 2023 contributed $90 million of the increase, with the remainder driven by growth in clinical trials and pharmaceuticals within our healthcare operations. Revenue in mail services remained relatively flat as rate increases and a favorable shift in product characteristics were offset by a decrease in volume.

Revenue from other businesses within Supply Chain Solutions decreased, driven by a reduction of $69 million from lower volumes under contracts with the USPS. Revenue from transition services provided to the acquirer of UPS Freight declined $34 million as we continue to wind down these arrangements. These reductions were partially offset by higher revenue from our digital businesses due to business growth and the impact of the acquisition of Happy Returns in the fourth quarter of 2023. We expect revenue from our other Supply Chain Solutions businesses will increase during the second half of 2024 as this is where we will report the revenue related to the additional air cargo volume under our recently announced agreement with the USPS.

Operating Expenses

Total operating expenses and adjusted operating expenses within Supply Chain Solutions decreased for the quarter.

Forwarding operating expenses decreased $229 million, primarily due to a reduction of approximately $196 million in purchased transportation expense as a result of lower market rates across our businesses, and decreased volumes in both the airfreight and truckload brokerage businesses. We expect our operating expenses will increase during the second half of 2024 driven by expected higher volumes.

Logistics operating expenses increased $124 million, driven by the impact of the acquisition of MNX Global Logistics which contributed $88 million of the increase. Expenses in our healthcare operations increased $43 million, primarily due to higher rates for third-party transportation. Operating expenses in mail services were relatively flat. On an unadjusted basis, Logistics operating expenses were also impacted by a charge to write down the value of certain trade names acquired as part of the Bomi Group acquisition.

Expenses in our other Supply Chain Solutions businesses decreased, largely driven by the reduction in transportation costs incurred to fulfill our obligations to the USPS under existing agreements. Costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight also decreased as we continued to wind down these arrangements. These decreases were partially offset by higher operating costs within our digital businesses. On an unadjusted basis, these decreases were offset by the impact of transformation and other costs, including an expense related to a regulatory matter. We expect expenses in our other Supply Chain Solutions businesses will increase during the second half of 2024, as this is where we will report expenses related to the additional air cargo volume under our recently announced agreement with the USPS.

Operating Profit and Margin

As a result of the factors described above, total operating profit decreased $115 million, with operating margin decreasing 320 basis points to 4.1%. On an adjusted basis, operating profit decreased $32 million with adjusted operating margin decreasing 60 basis points to 7.0%.

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Consolidated Operating Expenses


	Three Months Ended March 31,				Change
	2024		2023		$		%
Operating Expenses (in millions):
Compensation and benefits	$	11,639	$	11,464	$	175	1.5	%
Transformation and Other Costs	(31)		12		(43)		N/A
Adjusted Compensation and benefits	$	11,608	$	11,476	$	132	1.2	%

Repairs and maintenance	$	718	$	725	$	(7)	(1.0)	%
Depreciation and amortization	898		834		64		7.7	%
Purchased transportation	3,246		3,541		(295)		(8.3)	%
Fuel	1,060		1,271		(211)		(16.6)	%
Other occupancy	564		551		13		2.4	%
Other expenses	1,968		1,998		(30)		(1.5)	%
Total Other expenses	8,454		8,920		(466)		(5.2)	%
Transformation and Other Costs	(55)		(15)		(40)		266.7	%
Asset Impairment Charges	(48)		(8)		(40)		500.0	%
Adjusted Total Other expenses	$	8,351	$	8,897	$	(546)	(6.1)	%

Total Operating Expenses	$	20,093	$	20,384	$	(291)	(1.4)	%
Adjusted Total Operating Expenses	$	19,959	$	20,373	$	(414)	(2.0)	%

Currency (Benefit) / Cost - (in millions)*					$	(18)
* Amount represents the change in currency translation compared to the prior year.


	Three Months Ended March 31,				Change
	2024		2023		$		%
Adjustments to Operating Expenses (in millions):
Transformation and Other Costs
Compensation	$	5	$	5	$	—	—	%
Benefits	26		(17)		43		N/A


Other expenses	55		15		40		266.7	%
Total Transformation and Other Costs	$	86	$	3	$	83	N/M
Asset Impairment Charges
Other expenses	$	48	$	8	$	40	500.0	%
Total Adjustments to Operating Expenses	$	134	$	11	$	123	N/M

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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Compensation and Benefits

Total compensation and benefits and adjusted total compensation and benefits increased in the first quarter. Compensation costs increased $97 million. The principal factors contributing to the increase were:

Direct labor costs increased $199 million. Contractual wage rate increases for our U.S. union workforce resulted in an increase in costs of $328 million. This was partially offset by the impact of reductions in U.S. direct labor hours and administrative headcount due to volume declines, which reduced expense by $207 million. The remaining increase was driven by changes in seniority within our workforce. We expect wage rate growth to remain elevated on a year-over-year basis in the second quarter before moderating during the second half of 2024 as a result of the terms of our contract with the Teamsters.
Management compensation costs decreased $73 million due to a reduction in incentive compensation expense and lower overall headcount.

Benefits costs increased $78 million for the quarter, and increased $35 million on an adjusted basis. The principal factors driving the increase were:

Accruals for paid time off, payroll taxes and other costs increased $43 million, primarily due to contractual wage rate growth.
Health and welfare costs increased $39 million, driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.
Workers' compensation expense decreased $29 million due to favorable developments in prior year claims counts.
Pension and other postretirement benefits expense decreased $12 million as reductions in participating headcount more than offset increases in service costs under Company-sponsored plans due to lower discount rates and benefit increases under the terms of the Teamsters contract.
Other employee benefits expense increased $37 million due to separation costs incurred as we continued to right-size our business for the future. On an adjusted basis, other employee benefits expense remained relatively flat.

Repairs and Maintenance

The decrease in repairs and maintenance expense was primarily due to the deferral of aircraft engine maintenance, as the declines in volume resulted in the temporary idling of certain aircraft. This was partially offset by an increase in routine repairs to buildings and facilities. We expect these expense trends to continue in the second quarter.

Depreciation and Amortization

We incurred higher depreciation expense as a result of facility automation and expansion projects coming into service. Amortization expense for capitalized software investments in support of our strategic initiatives increased, and we recorded additional amortization expense for intangible assets due to the acquisitions of MNX Global Logistics and Happy Returns in the fourth quarter of 2023.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers decreased for the quarter. The changes were primarily driven by:

Supply Chain Solutions expense decreased $123 million, driven by volume declines and lower market rates paid for services in our Forwarding businesses. This was partially offset by expense increases in our logistics operations due to business growth and the impact of the acquisition of MNX Global Logistics.
U.S. Domestic expense decreased $116 million due to overall volume declines, a reduction in ground volume handled by third-party carriers and other network optimization initiatives. These decreases were partially offset by an increase in delivery costs for our SurePost product as a result of higher volume.
International Package expense decreased $56 million, primarily due to declines in volume.

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Fuel

The reduction in fuel expense for the quarter was driven by lower prices for jet fuel, diesel and gasoline, and the impact of lower volumes. Market prices and the manner in which we purchase fuel influence our costs. The majority of our fuel purchases utilize index-based pricing formulas plus or minus a fixed locational/supplier differential. While many of the indices are correlated, each index may respond differently to changes in underlying prices, which in turn can drive variability in our costs.

Other Occupancy

Other occupancy expense increased for the quarter, primarily due to increases in property rents. A decrease in utilities expense as a result of declines in rates and usage was offset by higher costs related to winter weather events.

Other Expenses

Other expenses decreased $30 million for the quarter. We recorded a $41 million charge to write down the value of certain trade names acquired as part of our acquisition of Bomi Group as we consolidate our brands, and a $7 million impairment charge related to software licenses. Additionally, we incurred $55 million of transformation and other costs, including an expense related to a regulatory matter. On an adjusted basis, other expenses decreased $110 million, primarily due to the following:

A reduction in outsourcing and consulting fees of $50 million driven by a decrease in project-based engagements and higher capitalization of third-party software development costs.
Reductions in vehicle lease expense of $57 million due to volume declines.
Claims expense decreased $20 million due to a reduction in the volume of customer claims.

These reductions were partly offset by:

Credit loss increases of $47 million across our segments as a result of an increased number of customer bankruptcies and increases in reserves.
RFID supplies for Smart Package Smart Facility increased $30 million as we expanded utilization.
Hosted software application fees and other technology costs that support ongoing investments in our digital transformation increased $15 million.

Other expense reductions during the quarter were primarily associated with volume declines, including employee-related expenses, airline operational expenses, advertising costs and insurance.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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Other Income (Expense)

The following table sets forth investment income and other and interest expense for the three months ended March 31, 2024 and 2023 (in millions):


	Three Months Ended March 31,				Change
	2024		2023		$		%
Investment Income and Other	$	118	$	169	$	(51)	(30.2)	%



Interest Expense	(195)		(188)		(7)		3.7	%
Total Other Income (Expense)	$	(77)	$	(19)	$	(58)	305.3	%

Investment Income and Other

Investment income decreased for the quarter, primarily due to a reduction in invested balances and year-over-year changes in certain non-current investments. Other pension income remained flat as higher expected returns on pension assets were offset by an increase in interest cost as a result of plan growth and changes in demographic assumptions.

Interest Expense

Interest expense increased for the quarter due to higher average outstanding debt balances, partially offset by an increase in capitalized interest.

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Income Tax Expense

The following table sets forth our income tax expense and effective tax rate for the three months ended March 31, 2024 and 2023 (in millions):


	Three Months Ended March 31,						Change
	2024			2023			$		%
Income Tax Expense	$	423		$	627		$	(204)	(32.5)	%
Income Tax Impact of:
Transformation and Other Costs	11			—			11		N/A
Asset Impairment Charges	13			2			11		550.0	%
Adjusted Income Tax Expense	$	447		$	629		$	(182)	(28.9)	%
Effective Tax Rate	27.5		%	24.9		%
Adjusted Effective Tax Rate	26.8		%	24.8		%

For additional information on our income tax expense and effective tax rate, see note 16 to the unaudited, consolidated financial statements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

Liquidity and Capital Resources

We deploy a disciplined and balanced approach to capital allocation, including returns to shareowners through dividends and share repurchases. As of March 31, 2024, we had $4.5 billion in cash, cash equivalents and marketable securities. We believe that these positions, expected cash from operations, access to commercial paper programs and capital markets and other available liquidity options will be adequate to fund our material short- and long-term cash requirements, including our business operations, planned capital expenditures, pension contributions, planned acquisitions, transformation costs, debt obligations and planned shareowner returns. We regularly evaluate opportunities to optimize our capital structure, including through issuances of debt to refinance existing debt and to fund operations.

Cash Flows From Operating Activities

The following is a summary of the significant sources (uses) of cash from operating activities (in millions):


	Three Months Ended March 31,
	2024		2023
Net income	$	1,113	$	1,895
Non-cash operating activities (1)	1,308		1,226
Pension and postretirement medical benefit plan contributions (company-sponsored plans)	(50)		(1,277)
Hedge margin receivables and payables	(8)		(159)
Income tax receivables and payables	257		426
Changes in working capital and other non-current assets and liabilities	696		278
Other operating activities	—		(32)
Net cash from operating activities	$	3,316	$	2,357

(1) Represents depreciation and amortization, gains and losses on derivative transactions and foreign currency exchange, deferred income taxes, allowances for expected credit losses, amortization of operating lease assets, pension and postretirement medical benefit plan (income) expense, stock compensation expense, changes in casualty self-insurance reserves, goodwill and other asset impairment charges and other non-cash items.

Net cash from operating activities increased $959 million for the quarter primarily due to a decrease in contributions to our company-sponsored, defined benefit pension and postretirement medical plans. Net cash was also favorably impacted by:

A reduction in hedge margin collateral outflows due to changes in the fair value of derivative contracts used in our currency hedging programs.
Working capital benefits from lower incentive compensation payments and payment of deferred employer payroll taxes in 2023 that did not repeat.

These factors were partially offset by:

The reduction in net income.
A decrease in income taxes payable, primarily driven by business performance.

As of March 31, 2024, approximately $2.0 billion of our total worldwide holdings of cash, cash equivalents and marketable securities were held by foreign subsidiaries. The amount of cash, cash equivalents and marketable securities held by our U.S. and foreign subsidiaries fluctuates throughout the year due to a variety of factors, including the timing of cash receipts, strategic operating needs and disbursements in the normal course of business. Cash provided by operating activities in the U.S. continues to be our primary source of funds to finance domestic operating needs, capital expenditures, share repurchases, pension contributions and dividend payments to shareowners. All cash, cash equivalents and marketable securities held by foreign subsidiaries are generally available for distribution to the U.S. without any U.S. federal income taxes. Any such distributions may be subject to foreign withholding and U.S. state taxes. When amounts earned by foreign subsidiaries are expected to be indefinitely reinvested, no accrual for taxes is provided. As of March 31, 2024, we had $93 million of restricted cash. For more information on restricted cash, see note 1 to the unaudited, consolidated financial statements.

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Cash Flows From Investing Activities

Our primary sources (uses) of cash from investing activities were as follows (in millions):


	Three Months Ended March 31,
	2024			2023
Net cash (used in) from investing activities	$	1,566		$	(1,813)

Capital Expenditures:
Buildings, facilities and plant equipment	$	(327)		$	(368)
Aircraft and parts	(174)			(71)
Vehicles	(349)			(13)
Information technology	(185)			(157)
Total Capital Expenditures	$	(1,035)		$	(609)

Capital Expenditures as a % of revenue	4.8		%	2.7		%

Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipment	$	13		$	5
Net (purchases) sales and maturities of marketable securities	$	2,646		$	(1,192)
Acquisitions, net of cash acquired	$	(44)		$	(34)
Other investing activities	$	(14)		$	17

We have commitments for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement of existing capacity and anticipated future growth. Future capital spending for anticipated growth and replacement assets will depend on a variety of factors, including economic and industry conditions. Our 2024 investment program anticipates investments in technology initiatives and enhanced network capabilities, including approximately $1.0 billion of projects that support our environmental sustainability goals. It also provides for the maintenance of buildings, facilities and equipment and replacement of certain aircraft within our fleet. We currently expect that our capital expenditures will total approximately $4.5 billion in 2024, of which approximately 50 percent will be allocated to network enhancement projects and other technology initiatives.

For the quarter, total capital expenditures increased, primarily due to:

Vehicle expenditure increases, driven by the timing of payments and availability of vehicle replacements.
Information technology expenditure increases due to additional deployments of technology equipment and capitalized software projects.
Aircraft expenditure increases due to final payments associated with the delivery of aircraft.

These were partially offset by decreased spending on buildings, facilities and plant equipment, driven by the timing of network enhancement projects.

We received cash proceeds of $2.6 billion from the sale of marketable securities due to the liquidation of our portfolio to provide additional resources for short-term and strategic operating needs.

Cash paid for acquisitions in both 2024 and 2023 related to the purchase of development areas for The UPS Store. Other investing activities were impacted by changes in our non-current investments, purchase contract deposits and various other immaterial items.

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Cash Flows From Financing Activities

Our primary sources (uses) of cash from financing activities were as follows (in millions, except per share data):


	Three Months Ended March 31,
2024			2023
Net cash (used in) from financing activities	$	(3,666)		$	4
Share Repurchases:
Cash paid to repurchase shares	$	—		$	(751)
Number of shares repurchased	—			(4.1)
Shares outstanding at period end	855			859
Dividends:
Dividends declared per share	$	1.63		$	1.62
Cash paid for dividends	$	(1,348)		$	(1,348)
Borrowings:
Net borrowings (repayments) of debt principal	$	(2,198)		$	2,438
Other Financing Activities:
Cash received for common stock issuances	$	54		$	49
Other financing activities	$	(174)		$	(384)
Capitalization:
Total debt outstanding at period end	$	20,013		$	22,188
Total shareowners’ equity at period end	16,933			20,053
Total capitalization	$	36,946		$	42,241

We did not repurchase any shares under our stock repurchase program during first quarter of 2024, and we do not currently anticipate repurchasing any shares during the remainder of the year. We repurchased 4.1 million shares of class B common stock for $750 million during the first quarter of 2023. For additional information on our share repurchase activities, see note 12 to the unaudited, consolidated financial statements.

The declaration of dividends is subject to the discretion of the Board and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors. In the first quarter, we increased our quarterly cash dividend from $1.62 to $1.63 per share.

There were no issuances of debt during the quarter. Issuances of debt during the first quarter of 2023 consisted of fixed and floating rate senior notes of varying maturities totaling $2.5 billion.

Repayments of debt during the quarter consisted of $2.2 billion of short- and long-term commercial paper as well as scheduled principal payments on our finance lease obligations. In the first quarter of 2023, we made scheduled principal payments on our finance lease obligations and repaid certain amounts assumed in the Bomi Group acquisition.

As of March 31, 2024, we had $1.5 billion of fixed-rate senior notes outstanding that mature in 2024. We intend to repay or refinance these amounts when due. We consider the overall fixed and floating interest rate mix of our portfolio and the related overall cost of borrowing when planning for future issuances and non-scheduled repayments of debt.

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RESULTS OF OPERATIONS

The amount of commercial paper outstanding fluctuates based on daily liquidity needs. The following is a summary of our commercial paper program (in millions):


	Outstanding balance at quarter end ($)		Average balance outstanding ($)		Average interest rate
2024
USD	$	—	$	552	5.45	%
Total	$	—

As of March 31, 2024, we had no outstanding balances under our U.S. or European commercial paper programs.

The variation in cash received from common stock issuances primarily resulted from activity within the UPS 401(k) Savings Plan and our employee stock purchase plan in both the current and comparative period.

Other financing activities includes cash used to repurchase shares to satisfy tax withholding obligations on vested employee stock awards. Cash outflows for this purpose were $177 and $363 million for the first quarter of 2024 and 2023, respectively. The decrease was driven by changes in required repurchase amounts.

Except as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, we do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.

Sources of Credit

See note 9 to the unaudited, consolidated financial statements for a discussion of our available credit and the financial covenants that we are subject to as part of our credit agreements.

Contractual Commitments

There have been no material changes to the contractual commitments described in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023.

Legal Proceedings and Contingencies

See note 7 and note 11 to the unaudited, consolidated financial statements for a discussion of judicial proceedings and other matters arising from the conduct of our business activities, and note 16 for a discussion of income tax related matters.

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RESULTS OF OPERATIONS

Collective Bargaining Agreements

Status of Collective Bargaining Agreements

See note 7 to the unaudited, consolidated financial statements for a discussion of the status of our collective bargaining agreements.

Multiemployer Benefit Plans

See note 7 to the unaudited, consolidated financial statements for a discussion of our participation in multiemployer benefit plans.

Recent Accounting Pronouncements

Adoption of New Accounting Standards

See note 2 to the unaudited, consolidated financial statements for a discussion of recently adopted accounting standards.

Accounting Standards Issued But Not Yet Effective

See note 2 to the unaudited, consolidated financial statements for a discussion of accounting standards issued, but not yet effective.

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