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

We are pursuing our goal of becoming the premium small package provider, logistics orchestrator and leading complex healthcare logistics provider in the world under our Customer First, People Led, Innovation Driven strategy. We are investing to grow in the most attractive parts of the market and transforming our integrated network through automation. Together, our Smart Package, Smart Facility and Network of the Future initiatives are providing enhanced shipment visibility for our customers and driving efficiency.

During the first half of the year, we took a number of steps in furtherance of our strategy. We continued to grow our healthcare logistics capabilities, including opening our first dedicated healthcare facility in Ireland. We also expanded the size of our flagship facility in the Netherlands, including additional ultra-cold storage capabilities to support the growing market for complex biopharma products. We continued adding partners to our Digital Access Program, expanded weekend service to six additional U.S. markets and launched an enhanced Worldwide Economy product globally.

We also continue to pursue inorganic opportunities. On June 23, 2024, we announced that we have entered into an agreement to divest our truckload brokerage business, Coyote, and on July 22, 2024, we announced that we have entered into an agreement to acquire Estafeta, a leading domestic small package provider in Mexico that is expected to enhance our logistics orchestration capabilities in this market.

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.

After volume declined in the first quarter of 2024, our global small package operations experienced growth during the second quarter. Within the U.S., volume growth was driven by residential volume from several new e-commerce customers. This growth occurred primarily in our SurePost product, which led to a decline in revenue per piece for the quarter. Internationally, we experienced declines in total average daily volume, but we experienced increased demand in certain export markets. This export volume growth occurred on several of our higher yielding trade lanes, contributing to an increase in revenue per piece in both the quarter and year-to-date periods.

In Supply Chain Solutions, revenue declines in the first quarter were largely offset by revenue growth during the second quarter, driven primarily by growth in our logistics businesses. This growth included the impact of the acquisition of MNX Global Logistics in the fourth quarter of 2023 as well as continued growth in our healthcare operations. Our digital businesses also saw revenue increase for the second quarter, and we began onboarding the new U.S. Postal Service ("USPS") air cargo business, which we expect to be fully implemented before our fourth-quarter peak period.

We expect revenue and operating profit growth in the second half of 2024 due to anticipated volume growth in our global small package operations. Additionally, wage-rate growth will decrease as we enter into the second year of the Teamsters contract beginning in the third quarter and we will further benefit from the impact of our Fit to Serve initiative. As a result of lower than originally planned capital expenditures and the anticipated divestiture of Coyote, we intend to return additional cash to shareowners by targeting approximately $500 million of share repurchases in the second half of the year.

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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 June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Revenue (in millions)$21,818$22,055$(237)(1.1)%$43,524$44,980$(1,456)(3.2)%
Operating Expenses (in millions)19,87419,2755993.1%39,96739,6593080.8%
Operating Profit (in millions)$1,944$2,780$(836)(30.1)%$3,557$5,321$(1,764)(33.2)%
Operating Margin8.9%12.6%8.2%11.8%
Net Income (in millions)$1,409$2,081$(672)(32.3)%$2,522$3,976$(1,454)(36.6)%
Basic Earnings Per Share$1.65$2.42$(0.77)(31.8)%$2.95$4.62$(1.67)(36.1)%
Diluted Earnings Per Share$1.65$2.42$(0.77)(31.8)%$2.94$4.61$(1.67)(36.2)%
Operating Days6464127128
Average Daily Package Volume (in thousands)20,93320,9020.1%21,06521,445(1.8)%
Average Revenue Per Piece$13.68$13.92$(0.24)(1.7)%$13.71$13.83$(0.12)(0.9)%

  • Average daily package volume in our global small package operations increased slightly in the quarter, primarily as a result of new e-commerce customers in our U.S. Domestic package segment. Year to date, continued challenging external conditions drove average daily package volume declines across all products in our global small package operations.

  • Revenue declined in both the quarter and year-to-date periods primarily as a result of unfavorable changes in product mix driven by customers trading down to lower cost options. Year to date, volume declines also contributed to the revenue decrease.

  • Operating expenses increased in the quarter and year-to-date periods, primarily due to increased compensation and benefits expense in our U.S. Domestic Package segment under our Teamsters contract. These increases were partially offset year to date by decreases in purchased transportation and fuel expenses as well as the impact of productivity initiatives.

  • Operating profit and operating margin decreased for both the quarter and year-to-date periods as efficiency initiatives were not enough to offset operating expense increases.

  • We reported quarterly net income of $1.4 billion and diluted earnings per share of $1.65 ($2.5 billion and $2.94 per share, year to date). Adjusted diluted earnings per share were $1.79 ($3.21 per share, year to date) after adjusting for the after-tax impacts of:

◦transformation and other costs of $26 million, or $0.03 per diluted share in the quarter ($101 million, or $0.12 per share, year to date);

◦a payment to settle a one-time international regulatory matter, including interest, of $94 million, or $0.11 per diluted share in the quarter and year-to-date periods; and

◦asset impairment charges of $35 million, or $0.04 per diluted share in the year-to-date period.

Within our segments, U.S. Domestic Package revenues and expenses were primarily impacted by the matters described above.

International Package revenues were impacted by lower volumes in both periods as described above, as well as fluctuations in currency exchange rates, all of which were partially offset by revenue per piece growth. Expense increased for the quarter, primarily driven by higher fuel prices and the impact of a payment to settle a one-time international regulatory matter. Year to date, expense was relatively flat.

In Supply Chain Solutions, revenue increases for the quarter were primarily driven by growth in Logistics, while year-to-date revenue declines were driven by Forwarding, particularly our truckload brokerage business. Logistics drove the overall increase in segment expense for both periods, partially offset by lower purchased transportation in Forwarding in both periods.

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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 June 30,Six Months Ended June 30,
Non-GAAP Adjustments2024202320242023
Operating Expenses:
Transformation and Other Costs$32$139$118$142
Asset Impairment Charges——488
One-Time International Regulatory Matter88—88—
Total Adjustments to Operating Expenses$120$139$254$150
Other Income and (Expense):
Interest Expense associated with One-Time International Regulatory Matter$6$—$6$—
Total Adjustments to Other Income and (Expense)$6$—$6$—
Total Adjustments to Income Before Income Taxes$126$139$260$150
Income Tax (Benefit) Expense:
Transformation and Other Costs$(6)$(33)$(17)$(33)
Asset Impairment Charges——(13)(2)
Total Adjustments to Income Tax (Benefit) Expense$(6)$(33)$(30)$(35)
Total Adjustments to Net Income$120$106$230$115

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

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

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.

International Regulatory Matter

In the second quarter of 2024, we made a payment of $94 million of previously restricted cash to settle a previously-disclosed challenge by Italian tax authorities to the deductibility of Value Added Tax payments by UPS to certain third-party service providers, a review of which was launched in the fourth quarter of 2023. We supplement the presentation of our operating profit, operating margin, interest expense, total other income (expense), income before income taxes, net income and earnings per share with non-GAAP measures that exclude the impact of this payment. We believe excluding the impact of this payment, which we do not believe is a component of our ongoing operations and we do not expect to recur, better enables users of our financial statements to view and evaluate underlying business performance from the same perspective as management.

Adjusted Cost per Piece

We evaluate the efficiency of our operations using various metrics, including adjusted cost per piece. Adjusted cost per piece is calculated as adjusted operating expenses in a period divided by total volume for that period. Because adjusted operating expenses 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, we believe this is the appropriate metric on which to base reviews and evaluations of the efficiency of our operational performance.

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 second quarter of 2024, air cargo volume from our previously-announced agreement with the USPS resulted in immaterial additional air network expense being allocated to Supply Chain Solutions for the quarter. We anticipate this allocation will increase in the second half of the year as the related volume attributable to this agreement increases.

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 air volumes, 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 June 30, 2024, we had eight aircraft temporarily idled for an average period of approximately four months. We expect these aircraft to return to revenue service in the second half of 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 June 30, 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 June 30, 2024, none of our reporting units had indications that an impairment was more likely than not. Approximately $1.1 billion of our consolidated goodwill balance of $4.4 billion is represented by our Global Freight Forwarding 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.

During the second quarter, we determined our truckload brokerage business, Coyote, met the criteria to be classified as held for sale. In connection therewith, we tested the indefinite-lived trade name and goodwill associated with Coyote for impairment prior to reclassifying the assets associated with this business as held for sale. The tests did not indicate impairment. For additional information see note 8 and note 18 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

U.S. Domestic Package

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Average Daily Package Volume (in thousands):
Next Day Air1,5591,679(7.1)%1,5741,708(7.8)%
Deferred9911,087(8.8)%1,0191,113(8.4)%
Ground15,31414,9742.3%15,37615,385(0.1)%
Total Average Daily Package Volume17,86417,7400.7%17,96918,206(1.3)%
Average Revenue Per Piece:
Next Day Air$23.14$22.40$0.743.3%$23.14$22.27$0.873.9%
Deferred17.4516.800.653.9%17.4916.590.905.4%
Ground10.9211.29(0.37)(3.3)%10.9911.25(0.26)(2.3)%
Total Average Revenue Per Piece$12.35$12.68$(0.33)(2.6)%$12.42$12.61$(0.19)(1.5)%
Operating Days in Period6464127128
Revenue (in millions):
Next Day Air$2,309$2,407$(98)(4.1)%$4,625$4,868$(243)(5.0)%
Deferred1,1071,169(62)(5.3)%2,2632,363(100)(4.2)%
Ground10,70310,820(117)(1.1)%21,46522,152(687)(3.1)%
Total Revenue$14,119$14,396$(277)(1.9)%$28,353$29,383$(1,030)(3.5)%
Operating Expenses (in millions):
Operating Expenses$13,130$12,794$3362.6%$26,539$26,315$2240.9%
Transformation and Other Costs(8)(79)71(89.9)%(17)(101)84(83.2)%
Asset Impairment Charges———N/A(5)—(5)N/A
Adjusted Operating Expense$13,122$12,715$4073.2%$26,517$26,214$3031.2%
Operating Profit (in millions) and Operating Margin:
Operating Profit$989$1,602$(613)(38.3)%$1,814$3,068$(1,254)(40.9)%
Adjusted Operating Profit$997$1,681$(684)(40.7)%$1,836$3,169$(1,333)(42.1)%
Operating Margin7.0%11.1%6.4%10.4%
Adjusted Operating Margin7.1%11.7%6.5%10.8%

Revenue

The change in revenue was due to the following:

VolumeRates / Product MixFuel SurchargeTotal Revenue Change
Revenue Change Drivers:
Second quarter 2024 vs. 20230.7%(2.5)%(0.1)%(1.9)%
Year to date 2024 vs. 2023(2.1)%(0.7)%(0.7)%(3.5)%

Revenue was also negatively impacted by having one less operating day in the first 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

Volume

Average daily volume increased in the quarter but decreased year to date. Challenging macroeconomic conditions, including continued weakness in manufacturing output, drove the overall volume decline year to date, while new e-commerce customers entering our network were primarily responsible for the volume growth in the quarter. We anticipate that average daily volume will increase in both the second half of 2024 and on a full year-over-year basis as we expect to benefit from improving macroeconomic conditions and continue to execute on our strategic initiatives.

Business-to-consumer volume increased 4.8% in the quarter (up 1.6% year to date), due primarily to the addition of e-commerce customers noted above and stronger online consumer spending.

Business-to-business volume declined 4.6% in the quarter (down 5.1% year to date) for the reasons described above, driven by declines across a number of sectors including retail, technology and manufacturing. Returns volume increases in both the quarter and year to date partially offset the declines, primarily 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 decreased in both the quarter and year to date. The decrease was driven by continued execution under the contract terms with our largest customer as planned, as well as by the impact of other large customers making cost trade-offs to our ground network products.

Average daily volume for Ground commercial shipments decreased 4.6% for the quarter (down 5.1% year to date), due to the impact of general economic conditions discussed above. We experienced declines from both large customers and small-and medium-sized businesses ("SMBs") in both the quarter and year to date, slightly offset by continued growth within our Digital Access Program. Overall Ground residential volumes increased 7.9% for the quarter (up 4.0% year to date), primarily due to an increase in SurePost volume from new e-commerce customers.

Revenue Per Piece

Revenue per piece from our Air products increased for the quarter and year to date, while revenue per piece from our Ground products declined for both periods. In December 2023, we implemented an average 5.9% net increase in base and accessorial rates for both our Air and Ground products, which favorably impacted revenue per piece. This was partially offset by decreases in fuel surcharge revenues and average billable weight per piece. The unfavorable shift in product mix and an increase in shorter zone shipments also negatively impacted revenue per piece within our Ground products.

We anticipate the year-over-year revenue per piece growth rate will improve in the second half of the year due in part to Peak delivery surcharges, although it will remain pressured by product mix.

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 $12 million for the quarter, primarily driven by an unfavorable shift in product mix, partially offset by the impact of our pricing initiatives. The year-to-date decrease of $196 million in fuel surcharge revenue was due to lower overall volume and fuel price declines in the first quarter.

We expect fuel surcharge revenue to increase year over year 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

Operating Expenses

Operating expenses and adjusted operating expenses increased for the quarter and year to date. Pickup and delivery costs increased $375 million in the quarter (up $686 million year to date) and package sortation costs increased $66 million in the quarter (up $166 million year to date). The increase in operating expenses was primarily due to increased compensation and benefits expense for both the quarter and year-to-date periods. This was driven by wage rate increases for our union workforce under our Teamsters contract and the impact of seniority, partially offset by a reduction in direct labor hours. We anticipate compensation and benefits expense growth will moderate in the second half of 2024 as we enter the second year of the Teamsters contract.

These increases were partially offset by a decrease of $7 million in the costs of operating our integrated air and ground network in the quarter (down $298 million year to date), and a decrease in other operating costs of $27 million (down $251 million year to date). In addition to the impact of one less operating day in the first half of 2024, these reductions were primarily driven by:

  • A reduction in purchased transportation costs and aircraft block hours resulting from changes in product mix and network optimization initiatives, partially offset by higher third-party delivery expense required to address increased SurePost volume.

  • A reduction in fuel expense for both periods, driven by decreases in the cost of ground fuels, as well as the positive impact of network optimization initiatives that reduced overall fuel consumption. A decrease in the cost of jet fuel and volume declines in the first quarter also contributed to the year-to-date reduction.

  • A reduction in allocated expenses in both periods, including benefits from our Fit to Serve initiative.

Cost per piece increased 1.9% for the quarter (up 3.0% year to date), and adjusted cost per piece increased 2.5% (up 3.3% year to date). For both periods, the increase in cost per piece was primarily driven by the higher wage rates for our union workforce discussed above, while volume and revenue declined year to date. We anticipate the cost per piece growth rate will moderate for the remainder of the year as our cost of labor growth rate is expected to moderate.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $613 million in the quarter (down $1.3 billion year to date), with operating margin decreasing 410 basis points to 7.0% (down 400 basis points to 6.4% year to date). Adjusted operating profit decreased $684 million in the quarter (down $1.3 billion year to date), with adjusted operating margin decreasing 460 basis points to 7.1% (down 430 basis points to 6.5% year to date).

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

International Package

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Average Daily Package Volume (in thousands):
Domestic1,4851,554(4.4)%1,4941,594(6.3)%
Export1,5841,608(1.5)%1,6021,645(2.6)%
Total Average Daily Package Volume3,0693,162(2.9)%3,0963,239(4.4)%
Average Revenue Per Piece:
Domestic$8.10$7.67$0.435.6%$8.05$7.63$0.425.5%
Export33.9033.700.200.6%33.3633.340.020.1%
Total Average Revenue Per Piece$21.42$20.91$0.512.4%$21.15$20.69$0.462.2%
Operating Days in Period6464127128
Revenue (in millions):
Domestic$770$763$70.9%$1,528$1,557$(29)(1.9)%
Export3,4373,468(31)(0.9)%6,7877,020(233)(3.3)%
Cargo and Other163184(21)(11.4)%311381(70)(18.4)%
Total Revenue$4,370$4,415$(45)(1.0)%$8,626$8,958$(332)(3.7)%
Operating Expenses (in millions):
Operating Expenses$3,652$3,532$1203.4%$7,252$7,247$50.1%
Transformation and Other Costs(18)(19)1(5.3)%(42)3(45)N/A
One-Time International Regulatory Matter(88)—(88)N/A(88)—(88)N/A
Asset Impairment charges———N/A(2)—(2)N/A
Adjusted Operating Expenses$3,546$3,513$330.9%$7,120$7,250$(130)(1.8)%
Operating Profit (in millions) and Operating Margin:
Operating Profit$718$883$(165)(18.7)%$1,374$1,711$(337)(19.7)%
Adjusted Operating Profit$824$902$(78)(8.6)%$1,506$1,708$(202)(11.8)%
Operating Margin16.4%20.0%15.9%19.1%
Adjusted Operating Margin18.9%20.4%17.5%19.1%
Currency Benefit / (Cost) – (in millions)(1):
Revenue$(61)$(86)
Operating Expenses3432
Operating Profit$(27)$(54)

(1) 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:

VolumeRates / Product MixFuel SurchargeCurrencyTotal Revenue Change
Revenue Change Drivers:
Second quarter 2024 vs. 2023(2.9)%1.9%1.4%(1.4)%(1.0)%
Year to date 2024 vs. 2023(5.3)%2.6%—%(1.0)%(3.7)%

Year-to-date revenue was also negatively impacted by having one less operating day in the first 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

Volume

Average daily volume decreased in the quarter and year-to-date periods for both our export and domestic products, impacted by challenging economic conditions and geopolitical factors. We experienced volume declines from both large customers and SMBs, primarily within the retail and manufacturing sectors. This was partially offset by growth from customers in the technology sector in both the quarter and year-to-date periods. Business-to-business volume decreased 3.9% for the quarter (down 3.8% year to date), while business-to-consumer volume remained relatively flat (down 6.0% year to date). We expect year-over-year average daily volume to improve in the second half of the year, dependent on an improvement in global macroeconomic conditions.

For both the quarter and year to date, the decrease in export volume was driven by declines on intra-Europe trade lanes as challenging economic conditions continued to impact consumer spending. For the quarter, these declines were partially offset by growth in 11 of our top 20 export countries. This included improvements on the Americas to U.S. trade lanes as manufacturing and distribution moves closer to the U.S. consumer market, and improvements on the China to U.S. trade lane driven by retail, technology and manufacturing customers.

Our premium products experienced a volume decline of 5.6% for the quarter (down 7.6% year to date), primarily from our Worldwide Express products as we continued to see customers make cost trade-offs to our economy products. Volume in our non-premium products was relatively flat for both the quarter and year to date, with a shift from Transborder to Worldwide products resulting from the trade lane shifts discussed above.

Domestic volume decreased both for the quarter and year to date, driven by declines in a number of European markets, as challenging economic conditions continued to negatively impact consumer spending. These declines were slightly offset in the second quarter by growth from retail customers in the Americas region during that period.

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 2.4% for the quarter (up 2.2% year to date), primarily due to base rate and fuel surcharge increases. These were partially offset by unfavorable currency movements and declines in demand-related surcharges. Excluding the impact of currency, revenue per piece increased 4.0% for the quarter (up 3.2% year to date). We anticipate overall revenue per piece will increase in the second half of 2024 relative to the prior year, driven by expected volume growth in Asia.

Export revenue per piece increased 0.6% for the quarter but remained relatively flat year to date. The improvement for the quarter was driven by base rate increases and a favorable shift in geographic mix. Excluding the impact of currency, export revenue per piece increased 2.0% for the quarter (up 1.0% year to date).

Domestic revenue per piece increased 5.6% for the quarter (up 5.5% year to date), driven by base rate increases and favorable shifts in customer and geographic mix, partially offset by unfavorable currency movements. Excluding the impact of currency, domestic revenue per piece increased 8.0% for the quarter (up 7.1% year to date).

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 increased $52 million for the quarter, with the impacts of our pricing initiatives more than offsetting volume declines. Year to date, fuel surcharge revenue decreased $7 million due to the impact of lower fuel prices in the first quarter and year-to-date volume declines. We anticipate fuel surcharge revenue will increase in the second half of the year driven by expected volume growth.

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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 increased for the second quarter while remaining relatively flat year to date. Adjusted operating expenses increased slightly for the second quarter but decreased for the year-to-date period.

  • The cost of operating our integrated air and ground network increased $41 million for the quarter, driven primarily by an increase in the cost of jet fuel. Year to date, network costs decreased $85 million due to a fuel price decline in the first quarter and reductions in air charters and aircraft block hours resulting from volume declines.

On an unadjusted basis, a payment to settle a one-time regulatory matter in Italy also contributed to the increase during the quarter and largely offset the reduction in network costs year to date.

We expect our operating expenses will increase during the second half of 2024, driven by expected volume growth.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $165 million for the quarter ($337 million year to date), with operating margin decreasing 360 basis points to 16.4% (down 320 basis points to 15.9% year to date). Adjusted operating profit decreased $78 million ($202 million year to date) and adjusted operating margin decreased 150 basis points to 18.9% (down 160 basis points to 17.5% year to date).

Increased geopolitical uncertainty continues to impact volumes in our International Package segment. As previously disclosed, substantially all of our operations in Russia have been suspended and we expect to complete the liquidation of our Small Package and Forwarding and Logistics subsidiaries in Russia by the end of 2024. In July 2024, we completed liquidation of our operations in Belarus. 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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Supply Chain Solutions

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Revenue (in millions):
Forwarding$1,315$1,376$(61)(4.4)%$2,595$2,890$(295)(10.2)%
Logistics1,5461,4311158.0%3,0882,8412478.7%
Other468437317.1%862908(46)(5.1)%
Total Revenue$3,329$3,244$852.6%$6,545$6,639$(94)(1.4)%
Operating Expenses (in millions):
Operating Expenses$3,092$2,949$1434.8%$6,176$6,097$791.3%
Transformation and Other Costs(6)(41)35(85.4)%(59)(44)(15)34.1%
Asset Impairment Charges———N/A(41)(8)(33)412.5%
Adjusted Operating Expenses:$3,086$2,908$1786.1%$6,076$6,045$310.5%
Operating Profit (in millions) and Operating Margin:
Operating Profit$237$295$(58)(19.7)%$369$542$(173)(31.9)%
Adjusted Operating Profit$243$336$(93)(27.7)%$469$594$(125)(21.0)%
Operating Margin7.1%9.1%5.6%8.2%
Adjusted Operating Margin7.3%10.4%7.2%8.9%
Currency Benefit / (Cost) – (in millions)(1):
Revenue$(28)$(42)
Operating Expenses2949
Operating Profit$1$7

(1) Amount represents the change in currency translation compared to the prior year.

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Adjustments to Operating Expenses (in millions):
Transformation and Other Costs
Forwarding$—$23$(23)(100.0)%$7$24$(17)(70.8)%
Logistics118(17)(94.4)%720(13)(65.0)%
Other5—5N/A45—45N/A
Total Transformation and Other Costs$6$41$(35)(85.4)%$59$44$1534.1%
Asset Impairment Charges
Forwarding$—$—$—N/A$—$8$(8)(100.0)%
Logistics———N/A41—41N/A
Other———N/A———N/A
Total Asset Impairment Charges$—$—$—N/A$41$8$33412.5%
Total Adjustments to Operating Expenses$6$41$(35)(85.4)%$100$52$4892.3%

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Revenue

Total revenue in Supply Chain Solutions increased for the quarter, but decreased year to date. The second quarter increase was primarily due to growth in Logistics and certain of our other businesses, which more than offset declines in Forwarding. Year to date, revenue declines in Forwarding were only partially offset by growth within Logistics.

Within our Forwarding businesses:

  • Revenue in our truckload brokerage business, Coyote, decreased $87 million for the quarter (down $236 million year to date) due to lower volumes and continuing softness in market rates. On June 23, 2024, we announced that we have entered into an agreement to divest our truckload brokerage business to RXO, Inc. for $1.025 billion. We expect this transaction to close by the end of 2024, subject to regulatory review and approval.

  • International airfreight revenue increased approximately $31 million for the quarter, driven by improved market rates and growth on Asia export lanes resulting from increased e-commerce volumes. Revenue decreased $22 million year to date, as weakness in market rates during the first quarter was only partially offset by second quarter improvements. We expect revenue growth to continue in the second half of 2024, with anticipated increases in e-commerce demand driving higher volumes and rates.

  • Ocean freight forwarding revenue declined for both the quarter and year to date. The second quarter decrease was due to lower volumes, largely offset by an increase in rates driven by improved market dynamics and favorable product mix. The year-to-date decrease was attributable to weak rates and an unfavorable product mix during the first quarter. We expect revenue growth in the second half of 2024 as lower capacity growth and disruptions in the Red Sea are expected to continue to drive up rates.

Within our Logistics businesses, revenue increased $115 million for the quarter (up $247 million year to date). The acquisition of MNX Global Logistics in the fourth quarter of 2023 contributed $88 million of the increase for the quarter ($178 million year to date), with the remainder driven by growth in clinical trials and pharmaceuticals business within our healthcare operations. We expect these trends will continue in the second half of the year. Revenue in mail services remained relatively flat for both the quarter and year to date as decreases in volume were partially offset by rate increases and a favorable shift in product characteristics. We expect our mail services business to generate volume and revenue growth during the second half of the year.

Revenue from other businesses within Supply Chain Solutions increased for the quarter, but decreased year to date.

  • In our digital businesses, revenue increased $44 million for the quarter (up $78 million year to date), driven by volume growth at Roadie and the impact of acquiring Happy Returns in the fourth quarter of 2023.

  • Revenue attributable to volume from the USPS was relatively flat for the quarter, but was down $74 million year to date as a result of lower volumes in the first quarter. We expect revenue will increase in the second half of 2024 as we fully onboard air cargo volume from our USPS agreement.

  • Revenue from transition services provided to the acquirer of UPS Freight continued to decrease in both the quarter and year-to-date periods as we continue to wind down these arrangements.

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Operating Expenses

Total operating expenses and adjusted operating expenses within Supply Chain Solutions increased for the second quarter and year to date.

Forwarding operating expenses decreased $42 million for the quarter (down $271 million year to date), primarily due to a reduction in purchased transportation expense as a result of lower volumes and market rates in our truckload brokerage business. Expense movements in our freight forwarding business were driven by international airfreight, which increased for the second quarter due to increases in market rates and volume growth, but were down year to date as a result of lower rates and volumes during the first quarter more than offsetting the second quarter growth. We expect our operating expenses will increase during the second half of 2024 driven by volume growth.

Logistics operating expenses increased $145 million for the quarter (up $269 million year to date), driven primarily by the impact of the acquisition of MNX Global Logistics which contributed $87 million of the increase for the quarter ($175 million year to date). Expenses in our healthcare operations increased $46 million for the quarter ($89 million year to date), primarily due to higher rates for third-party transportation. Operating expenses in mail services were relatively flat for both the quarter and year to date. We expect that Logistics operating expense will continue to increase in the second half of the year, driven by business growth. On an unadjusted basis, Logistics operating expenses were also impacted by a charge during the first quarter 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 increased $77 million for the quarter (up $33 million year to date), largely driven by higher operating costs within our digital businesses due to volume growth and the impact of acquiring Happy Returns. Expenses associated with USPS volumes increased during the second quarter as we began handling volume under our new air cargo agreement. Year to date, the increase was more than offset by lower costs associated with lower USPS volumes during the first quarter. Costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight also continued to decrease in both periods as we continued to wind down these arrangements. On an unadjusted basis, expense was further increased by the impact of transformation and other costs, including expense related to a regulatory matter. We expect expenses in our other Supply Chain Solutions businesses will increase during the second half of 2024 due to volume growth in our digital businesses and under our air cargo agreement with the USPS.

Operating Profit and Margin

As a result of the factors described above, total operating profit decreased $58 million for the second quarter (down

$173 million year to date), with operating margin decreasing 200 basis points to 7.1% (down 260 basis points to 5.6% year to date). On an adjusted basis, operating profit decreased $93 million for the second quarter (down $125 million year to date) with adjusted operating margin decreasing 310 basis points to 7.3% (down 170 basis points to 7.2% year to date).

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Consolidated Operating Expenses

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Operating Expenses (in millions):
Compensation and benefits$11,503$11,196$3072.7%$23,142$22,660$4822.1%
Transformation and Other Costs(20)(109)89(81.7)%(51)(97)46(47.4)%
Adjusted Compensation and benefits$11,483$11,087$3963.6%$23,091$22,563$5282.3%
Repairs and maintenance$734$682$527.6%$1,452$1,407$453.2%
Depreciation and amortization887828597.1%1,7851,6621237.4%
Purchased transportation3,2733,1711023.2%6,5196,712(193)(2.9)%
Fuel1,1261,090363.3%2,1862,361(175)(7.4)%
Other occupancy492458347.4%1,0561,009474.7%
Other expenses1,8591,85090.5%3,8273,848(21)(0.5)%
Total Other expenses8,3718,0792923.6%16,82516,999(174)(1.0)%
Transformation and Other Costs(12)(30)18(60.0)%(67)(45)(22)48.9%
Asset Impairment Charges———N/A(48)(8)(40)500.0%
One-Time International Regulatory Matter(88)—(88)N/A(88)—(88)N/A
Adjusted Total Other expenses$8,271$8,049$2222.8%$16,622$16,946(324)(1.9)%
Total Operating Expenses$19,874$19,275$5993.1%$39,967$39,659$3080.8%
Adjusted Total Operating Expenses$19,754$19,136$6183.2%$39,713$39,509$2040.5%
Currency (Benefit) / Cost - (in millions)(1)$(63)$(81)

(1) Amount represents the change in currency translation compared to the prior year.

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Adjustments to Operating Expenses (in millions):
Transformation and Other Costs
Compensation$8$5$360.0%$13$10$330.0%
Benefits12104(92)(88.5)%3887(49)(56.3)%
Other expenses1230(18)(60.0)%67452248.9%
Total Transformation and Other Costs$32$139$(107)(77.0)%$118$142$(24)(16.9)%
Asset Impairment Charges
Other expenses$—$—$—N/A$48$8$40500.0%
Total Asset Impairment Charges$—$—$—N/A$48$8$40500.0%
One-Time International Regulatory Matter
Other expenses$88$—$88N/A$88$—$88N/A
Total One-Time International Regulatory Matter$88$—$88N/A$88$—$88N/A
Total Adjustments to Operating Expenses$120$139$(19)(13.7)%$254$150$10469.3%

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Compensation and Benefits

Total compensation and benefits and adjusted total compensation and benefits increased for both the second quarter and year to date. Compensation costs increased $259 million for the quarter (up $356 million year to date) and on an adjusted basis increased $256 million for the quarter (up $352 million year to date). The principal factors contributing to the overall increase were:

  • Direct labor costs increased $349 million for the quarter (up $549 million year to date). Contractual wage rate increases for our U.S. union workforce resulted in an increase in costs of $299 million for the quarter (up $627 million year to date). Productivity improvements reduced direct labor cost by $41 million for the second quarter (down $43 million year to date). Additionally, the impact of lower volumes in the first quarter reduced year-to-date expense by $207 million. The remaining increase for both the quarter and year to date was primarily due to changes in seniority within our workforce. We expect wage rate growth to moderate beginning in the second half of the year as a result of the terms of our contract with the Teamsters.

  • Management compensation costs decreased $80 million for the quarter (down $154 million year to date) due to a reduction in incentive compensation expense and lower overall headcount.

Benefits costs increased $48 million for the second quarter (up $126 million year to date) and on an adjusted basis increased $140 million for the second quarter (up $176 million year to date). The principal factors driving the overall increase were:

  • Accruals for paid time off, payroll taxes and other costs increased $151 million for the quarter (up $194 million year to date), primarily due to contractual wage rate growth.

  • Health and welfare costs increased $52 million for the quarter (up $92 million year to date), driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.

  • Workers' compensation expense decreased $61 million for the quarter (down $90 million year to date) due to favorable developments in prior year claims counts and a reduction in hours worked.

  • Other employee benefits expense decreased $89 million for the quarter (down $52 million year to date) due to higher separation costs incurred in 2023 as we continue to right-size our business. On an adjusted basis, other employee benefits expense remained relatively flat.

Repairs and Maintenance

The increase in repairs and maintenance expense for both the second quarter and year to date was primarily attributable to higher routine repairs to buildings and facilities. During the second quarter, we also incurred additional aircraft engine maintenance expense due to the timing of required maintenance cycles. We expect these expense trends to continue in the second half of 2024.

Depreciation and Amortization

We incurred higher depreciation expense in the second quarter and year to date as a result of facility automation and expansion projects aligned with our strategic objectives. Amortization expense for capitalized software investments in support of our strategic initiatives increased for both periods, and we recorded additional amortization expense for intangible assets arising from 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 increased for the quarter, but decreased year to date. The changes were primarily driven by:

  • Supply Chain Solutions expense increased $64 million for the second quarter, driven by growth in healthcare logistics and the impact of the acquisition of MNX Global Logistics, as well as volume growth in our digital businesses. These impacts were partially offset by expense declines in truckload brokerage due to lower volumes and market rates paid for services. Year to date, expense decreased $59 million as the impact of volume declines and lower market rates across our forwarding businesses more than offset increases in our logistics businesses.

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  • U.S. Domestic expense increased $34 million for the second quarter, but decreased $82 million year to date. Volume growth in our SurePost product drove an increase in delivery costs of $85 million for the quarter (up $132 million year to date). For the quarter, this was partially offset by a reduction in ground volume handled by third-party carriers. Year to date, volume declines in the first quarter, together with the impact of network optimization initiatives, resulted in lower utilization of third-party ground and rail carriers and drove the overall reduction in expense.

  • International Package expense was relatively flat for the second quarter. Year to date, expense decreased $53 million, as the decline in volume resulted in lower utilization of third-party transportation services.

Fuel

The increase in fuel expense for the quarter was mainly attributable to higher prices for jet fuel. Year to date, overall fuel expense decreased, driven by the combination of lower prices for jet fuel and the impact of volume declines in the first quarter, as well as lower prices for diesel and gasoline. 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 and year to date, 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 during the first quarter.

Other Expenses

Other expenses remained relatively flat, increasing $9 million for the second quarter but decreasing $21 million year to date. During the second quarter, we made a $94 million payment, including interest, to settle a previously-disclosed challenge by Italian tax authorities to the deductibility of Value Added Tax payments by UPS to certain third-party service providers. We incurred $12 million of transformation and other costs for the quarter ($67 million year to date), including an additional expense related to a regulatory matter recorded in the first quarter. Also in the first 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 consolidated our brands and a $7 million impairment charge related to software licenses.

On an adjusted basis, other expenses decreased $61 million for the quarter (down $171 million year to date), primarily due to the following:

  • A reduction in outsourcing and consulting fees of $60 million for the quarter (down $110 million year to date) driven by a decrease in project-based engagements and higher capitalization of third-party software development costs.

  • Reductions in vehicle lease expense of $40 million for the quarter (down $97 million year to date), due to network optimization efforts and volume declines in the first quarter.

  • Claims expense decreases of $10 million for the quarter (down $30 million year to date) due to a reduction in the volume of customer claims.

These reductions were partly offset by:

  • Credit losses increased $17 million for the quarter (up $64 million year to date) 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 $20 million for the quarter (up $50 million year to date) as we continued to expand utilization.

  • Hosted software application fees and other technology costs increased $17 million for the quarter (up $32 million year to date) as we continue to make investments in support of our digital transformation.

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

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Other Income (Expense)

The following table sets forth investment income and other and interest expense for the three and six months ended June 30, 2024 and 2023 (in millions):

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Investment Income and Other$137$131$64.6%$255$300$(45)(15.0)%
Interest Expense(212)(191)(21)11.0%(407)(379)(28)7.4%
Interest Expense associated with One-Time International Regulatory Matter6—6N/A6—6N/A
Adjusted Interest Expense$(206)$(191)$(15)7.9%$(401)$(379)$(22)5.8%
Total Other Income (Expense)$(75)$(60)$(15)25.0%$(152)$(79)$(73)92.4%
Adjusted Total Other Income (Expense)$(69)$(60)$(9)15.0%$(146)$(79)$(67)84.8%

Investment Income and Other

Investment income and other increased $6 million for the second quarter but decreased $45 million year to date, primarily due to a reduction in invested balances and year-over-year changes in certain non-current investments. In the second quarter, a reduction in foreign currency exchange losses relative to the prior year offset the impact of these declines.

Other pension income remained flat for both the quarter and year to date, 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 second quarter and year to date, driven by higher average outstanding debt balances.

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Income Tax Expense

The following table sets forth our income tax expense and effective tax rate for the three and six months ended June 30, 2024 and 2023 (in millions):

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
Income Tax Expense$460$639$(179)(28.0)%$883$1,266$(383)(30.3)%
Income Tax Impact of:
Transformation and Other Costs633(27)(81.8)%1733(16)(48.5)%
Asset Impairment Charges———N/A13211550.0%
Adjusted Income Tax Expense$466$672$(206)(30.7)%$913$1,301$(388)(29.8)%
Effective Tax Rate24.6%23.5%25.9%24.2%
Adjusted Effective Tax Rate23.4%23.5%24.9%24.1%

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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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 June 30, 2024, we had $6.5 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):

Six Months Ended June 30,
20242023
Net income$2,522$3,976
Non-cash operating activities (1)2,5052,526
Pension and postretirement medical benefit plan contributions (company-sponsored plans)(150)(1,328)
Hedge margin receivables and payables(90)(298)
Income tax receivables and payables(117)(61)
Changes in working capital and other non-current assets and liabilities639856
Other operating activities—(77)
Net cash from operating activities$5,309$5,594

(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 decreased $285 million for the six months ended June 30, 2024 primarily due to a reduction in net income, somewhat offset by a decrease in year-to-date contributions to our company-sponsored, defined benefit pension and postretirement medical plans. Additional impacts included:

  • A favorable reduction in hedge margin collateral outflows, driven by changes in the fair value of derivative contracts used in our currency hedging programs and an increase in the threshold at which we exchange collateral with counterparties.

  • Unfavorable changes in working capital, driven by an increase in our 401(k) plan contributions, partially offset by a 2023 payment for deferred employer payroll taxes that did not repeat.

As of June 30, 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 June 30, 2024, $10 million of cash held by our truckload brokerage business, Coyote, was reported within Assets held for sale in our consolidated balance sheet. For more information, see note 18 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):

Six Months Ended June 30,
20242023
Net cash (used in) from investing activities$653$(2,859)
Capital Expenditures:
Buildings, facilities and plant equipment$(712)$(818)
Aircraft and parts(426)(272)
Vehicles(461)(277)
Information technology(369)(453)
Total Capital Expenditures$(1,968)$(1,820)
Capital Expenditures as a % of revenue4.5%4.0%
Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipment$28$50
Net (purchases) sales and maturities of marketable securities$2,663$(1,067)
Acquisitions, net of cash acquired$(66)$(34)
Other investing activities$(4)$12

We have commitments for pending acquisitions and 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 $4.0 billion in 2024, of which approximately 50 percent will be allocated to growth initiatives and network enhancement projects, including technology.

For the first six months of 2024, total capital expenditures increased compared to the 2023 period, primarily due to:

  • Vehicle expenditure increases, driven by the timing of payments and availability of vehicle replacements.

  • Aircraft expenditures driven by higher payments on open aircraft orders and the timing of final deliveries of aircraft.

These increases were partially offset by:

  • Decreases in spending on buildings, facilities and plant equipment, driven by the timing of network enhancement projects.

  • A reduction in information technology expenditures driven by the purchase of certain licenses in the 2023 period that did not repeat.

We received cash proceeds of $2.7 billion from the sale of marketable securities in the first six months of 2024 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 primarily to the purchase of development areas for The UPS Store. Other investing activities comprised various 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):

Six Months Ended June 30,
20242023
Net cash (used in) from financing activities$(2,767)$(3,582)
Share Repurchases:
Cash paid to repurchase shares$—$(1,498)
Number of shares repurchased—(8.4)
Shares outstanding at period end857855
Dividends:
Dividends declared per share$3.26$3.24
Cash paid for dividends$(2,701)$(2,693)
Borrowings:
Net borrowings (repayments) of debt principal$5$907
Other Financing Activities:
Cash received for common stock issuances$131$119
Other financing activities$(202)$(417)
Capitalization:
Total debt outstanding at period end$22,205$20,763
Total shareowners' equity at period end17,05320,037
Total capitalization$39,258$40,800

We did not repurchase any shares under our stock repurchase program in the first six months of 2024. We anticipate our share repurchases will total approximately $500 million in the second half of 2024. We repurchased 8.4 million shares of class B common stock for $1.5 billion during the 2023 period. 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. We increased our quarterly cash dividend to $1.63 per share in 2024, compared to $1.62 in 2023.

Issuances of debt during the 2024 period consisted of fixed- and floating-rate senior notes of varying maturities totaling $2.8 billion. Repayments of debt in the 2024 period consisted of $2.2 billion of short- and long-term commercial paper, our C$750 million fixed-rate senior notes and scheduled principal payments on our finance lease obligations. As of June 30, 2024, we had $900 million of fixed-rate senior notes outstanding that mature in 2024. We intend to repay or refinance these amounts when due.

Issuances of debt during the 2023 period consisted of fixed- and floating-rate senior notes of varying maturities totaling $2.5 billion. Repayments of debt in the 2023 period included $1.5 billion of fixed- and floating-rate senior notes, the repayment of debt assumed in the Bomi Group acquisition and scheduled principal payments on our finance lease obligations.

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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

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 as of June 30, 2024 ($)Average year-to-date balance outstanding ($)Average interest rate
2024
USD$—$3105.44%
Total$—

As of June 30, 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 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 $199 and $395 million for the six months ended June 30, 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, except as described below.

Purchase commitments represent contractual agreements to purchase assets, goods or services that are legally binding, including contracts for aircraft, construction of new or expanded facilities and vehicles. We also have commitments related to pending business acquisitions.

The following table summarizes the expected cash outflows to satisfy our total purchase commitments as of June 30, 2024 (in millions):

Commitment Type20242025202620272028After 2028Total
Purchase Commitments(1)$1,373$1,228$425$62$32$8$3,128

(1) Purchase commitments for 2024 include amounts related to pending business acquisitions.

For additional information on 2024 debt issuances and repayments, see note 9 to the unaudited, consolidated financial statements.

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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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

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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