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 continue to execute our Customer First, People Led and Innovation Driven strategy to grow in the most attractive parts of the market including healthcare, small and medium-sized businesses ("SMBs") and International.

During the second quarter and first half of 2025, we took several steps in furtherance of this strategy, including continuing our deliberate shift in our business to increase our focus on higher yielding volume. As previously disclosed, we have entered into an agreement with our largest customer that provides for reductions in the volume they ship with us, relative to 2024, by more than 50% by June 2026. Through the first half of 2025, this volume glide-down proceeded as planned, and in the second half 2025, we expect to accelerate the year-over-year pace of decline to close to 30%.

Also as previously disclosed, in the first half of 2025 we insourced our former SurePost product, using the UPS network for final mile delivery, and have since replaced it with Ground Saver, a new domestic economy service meant to complement our array of products used by our customers. The insourcing of this product pressured our operating results in both the second quarter and first half of 2025 as pickup and delivery costs were higher than last year. During the second quarter of 2025, we took pricing actions to manage Ground Saver volume and we are working to continue to reduce our costs related to this product.

In the first half of 2025, we completed the previously announced acquisition of Frigo-Trans and Biotech & Pharma Logistics ("Frigo-Trans"), an industry-leading, complex healthcare logistics provider based in Germany. The acquisition has increased our complex cold-chain logistics capabilities internationally. As previously disclosed, in the second quarter of 2025, we entered into an agreement to acquire Andlauer Healthcare Group ("AHG"), a leading North American supply chain management company that offers customized third-party logistics and specialized cold chain transportation solutions for the healthcare sector. This acquisition is expected to close in late 2025, subject to customary regulatory reviews and approvals.

As previously disclosed, our Network of the Future initiative is intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S. Domestic network. In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative, which is an expansion of Network of the Future and has led and will continue to lead to consolidations of our facilities and workforce as well as an end-to-end process redesign. We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration. In connection therewith, we expect to reduce our operational workforce by approximately 20,000 positions. During the second quarter of 2025, we closed daily operations at 74 leased and owned buildings, 68 of which have been permanently closed. We continue to review expected changes in volume in our integrated air and ground network to identify additional buildings for closure.

In connection with the Network Reconfiguration and Efficiency Reimagined programs, we expect to exclude between $400 and $650 million in non-GAAP adjusted expense during 2025, related primarily to third-party consulting fees, employee separation benefits and certain programmatic expenses. We expect the costs associated with these actions may increase should we determine to close additional buildings. In addition, we believe that workforce reductions may require a remeasurement of certain U.S. pension and postretirement benefit plan obligations and assets during 2025. We are not yet able to estimate the timing of potential impact of such an event. As of June 30, 2025, we have incurred costs related to these programs of $126 million. We have begun to realize the expected benefits from these programs and, as previously disclosed, expect to achieve $3.5 billion in savings from these programs in 2025.

In addition, we have incurred and expect to continue to incur other costs and benefits associated with our Network Reconfiguration programs and anticipated lower volumes, including early asset retirement, lease related costs and gains from the sale of properties. It is our intention to exit or abandon leases, sell property and transfer or dispose of equipment associated with closed facilities. During the first half of 2025, we incurred $37 million in accelerated depreciation and asset retirement obligations related to closed facilities and abandoned equipment and $34 million in gains on sale of properties. We expect the costs associated with these actions may increase should we determine to close additional buildings.

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.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Our financial results for both the second quarter and year-to-date periods of 2025 reflect the impact of a complex macro environment, driven by evolving trade policies, as well as the significant strategic actions we are taking. Our global package operations experienced volume declines during the second quarter and year-to-date periods of 2025 due to our strategic execution of planned volume declines from our largest customer and our revenue quality efforts, partially offset by volume growth in all regions of our International business. Overall declines in package volume in both periods were largely offset by growth in revenue per piece due to pricing actions and changes in customer and product mix. Revenue in our global small package operations during the second quarter and year-to-date periods of 2025 benefited from growth in air cargo revenue as we fully onboarded volume under our contract with the U.S. Postal Service ("USPS") during the fourth quarter of 2024.

Global trade policy changes including pending and enacted tariffs and the de minimis exclusions took effect during the second quarter of 2025 and resulted in shifting trade lane volumes, particularly reducing volumes on our China to U.S. lane, pressuring our International segment margins during the second quarter. Partially offsetting this decline was growth on other trade lanes, including from China to the rest of the world and the rest of the world into the U.S.

Supply Chain Solutions revenue decreased in both the second quarter and year-to-date periods of 2025, driven by the impact of the third quarter 2024 divestiture of Coyote and declines in Mail Innovations, Air and Ocean Forwarding, partially offset by growth in certain of our healthcare and digital businesses.

During the second quarter and first half of 2025, we continued to return cash to shareholders. We completed our previously announced $1.0 billion of share repurchases in the first half of 2025 and paid dividends of $1.64 per share and $3.28 per share in the second quarter and year-to-date periods of 2025, respectively.

The macro environment is highly uncertain due to changing trade policies and tariff uncertainty. As a global carrier, the eventual outcomes could result in pressure in some parts of our business and create new opportunities in others.

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

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$%20252024$%
Revenue (in millions)$21,221$21,818$(597)(2.7)%$42,767$43,524$(757)(1.7)%
Operating Expenses (in millions)19,39919,874(475)(2.4)%39,27939,967(688)(1.7)%
Operating Profit (in millions)$1,822$1,944$(122)(6.3)%$3,488$3,557$(69)(1.9)%
Operating Margin8.6%8.9%8.2%8.2%
Net Income (in millions)$1,283$1,409$(126)(8.9)%$2,470$2,522$(52)(2.1)%
Basic Earnings Per Share$1.51$1.65$(0.14)(8.5)%$2.91$2.95$(0.04)(1.4)%
Diluted Earnings Per Share$1.51$1.65$(0.14)(8.5)%$2.91$2.94$(0.03)(1.0)%
Operating Days6464126127
Average Daily Package Volume (in thousands)19,74120,933(5.7)%20,25721,065(3.8)%
Average Revenue Per Piece$14.34$13.68$0.664.8%$14.28$13.71$0.574.2%

  • Average daily package volume in our global small package operations decreased in both the quarter and year-to-date periods driven by our strategic execution of planned volume declines from our largest customer and pricing actions taken on certain e-commerce customers, as well as challenging macroeconomic conditions. The overall decreases in the U.S. Domestic Package segment in both the second quarter and year-to-date periods were partially offset by growth in SMB volume; consolidated volume declines were partially offset by growth in all regions of the International Package segment.

  • Revenue declined in both the quarter and year-to-date periods, driven by the impact of the third quarter 2024 divestiture of Coyote, which contributed $539 million of revenue in the second quarter of 2024 ($1.1 billion year to date in 2024), our strategic execution of planned volume declines from our largest customer, and macroeconomic conditions. These reductions were partially offset by increases in air cargo revenue in our global small package operations and the impact of revenue quality efforts.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

  • Operating expenses decreased in both the quarter and year-to-date periods, driven by decreases in purchased transportation and fuel expenses, primarily attributable to the impact of the 2024 divestiture of Coyote and the insourcing of our Ground Saver product. These decreases were partially offset by increases in compensation and benefits and other costs associated with pick up and delivery expenses driven by the insourcing of our Ground Saver Product and increases in purchased transportation rates within Mail Innovations.

  • Operating profit and operating margin decreased for the quarter (flat year to date) primarily due to lower volumes in the U.S. Domestic Package segment, increased pickup and delivery expense related to insourcing our Ground Saver product and shifting international trade lanes related to trade policy challenges, partially offset by the impact of revenue quality efforts.

  • We reported quarterly net income of $1.3 billion and diluted earnings per share of $1.51 ($2.5 billion and $2.91 per share, year to date). Non-GAAP adjusted diluted earnings per share for the quarter were $1.55 ($3.04 per share, year to date) after adjusting for the after-tax impacts of:

◦transformation strategy costs of $57 million, or $0.08 per diluted share, in the second quarter ($101 million, or $0.12 per diluted share, year to date);

◦gain on divestiture of $15 million, or ($0.02) per diluted share, in both the second quarter and year to date;

◦the reversal of an income tax valuation allowance of $13 million, or ($0.02) per diluted share, in the second quarter ($23 million, or ($0.03) per diluted share, year to date); and

◦goodwill and asset impairment charges of $49 million, or $0.06 per diluted share, in the year-to-date period.

For additional operational results for the quarter specific to our segments, refer to Results of Operations - Segment Review below.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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Supplemental Information - Items Affecting Comparability

We supplement the reporting of our financial information determined under generally accepted accounting principles ("GAAP") with certain non-GAAP adjusted financial measures.

Non-GAAP adjusted financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our non-GAAP 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.

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RESULTS OF OPERATIONS

Non-GAAP adjusted amounts reflect the following (in millions):

Three Months Ended June 30,Six Months Ended June 30,
Non-GAAP Adjustments2025202420252024
Operating Expenses:
Transformation Strategy Costs:
Transformation 2.0
Business Portfolio Review$(18)$(10)$(18)$(5)
Financial Systems15133129
Transformation 2.0 Total(3)31324
Fit to Serve9242849
Network Reconfiguration and Efficiency Reimagined68—91—
Total Transformation Strategy Costs742713273
Gain on Divestiture(20)—(20)—
Goodwill and Asset Impairment Charges——3948
Expense for Regulatory Matter—5—45
One-Time Payment for International Regulatory Matter—88—88
Total Adjustments to Non-GAAP Operating Expenses$54$120$151$254
Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
Other Income and (Expense):
Goodwill and Asset Impairment Charges$—$—$19$—
One-Time Payment for Int'l Regulatory Matter—6—6
Total Adjustments to Non-GAAP Other Income and (Expense)$—$6$19$6
Total Adjustments to Non-GAAP Income Before Income Taxes$54$126$170$260
Income Tax (Benefit) Expense:
Transformation Strategy Costs:
Transformation 2.0
Business Portfolio Review$(5)$(2)$(5)$(1)
Financial Systems4387
Transformation 2.0 Total(1)136
Fit to Serve25611
Network Reconfiguration and Efficiency Reimagined16—22—
Total Transformation Strategy Costs1763117
Gain on Divestiture(5)—(5)—
Goodwill and Asset Impairment Charges——913
Reversal of Income Tax Valuation Allowance13—23—
Total Adjustments to Non-GAAP Income Tax (Benefit) Expense$25$6$58$30
Total Adjustments to Non-GAAP Net Income$29$120$112$230

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

We supplement the presentation of operating profit, operating margin, other income and (expense), income before income taxes, net income and earnings per share with non-GAAP financial measures that exclude the impact of the following:

Transformation Strategy Costs

We exclude the impact of charges related to activities within our transformation strategy. Our transformation strategy activities have spanned several years and are designed to fundamentally change the spans and layers of our organization structure, processes, technologies and the composition of our business portfolio. Our transformation strategy includes initiatives within our Transformation 2.0, Fit to Serve, and Network Reconfiguration and Efficiency Reimagined programs. Various circumstances have precipitated these initiatives, including identification and prioritization of investments, developments and changes in competitive landscapes, inflationary pressures, consumer behaviors, and other factors including post-COVID normalization and volume diversions attributed to our 2023 labor negotiations.

Our transformation strategy includes the following programs and initiatives:

Transformation 2.0: Based on a number of factors including evaluating efficiencies previously gained, and in connection with changes in 2020, we identified and reprioritized certain then-current and future investments, including additional investments in our workforce, portfolio of businesses and technology (such projects, collectively, "Transformation 2.0"). Specifically, we identified opportunities to reduce spans and layers of management, began a review of our business portfolio and identified opportunities to invest in certain technologies, including financial reporting and certain schedule, time and pay systems, to reduce global indirect operating costs, provide better visibility, and reduce reliance on legacy systems and coding languages. As of June 30, 2025, our remaining efforts under Transformation 2.0 include technology initiatives related to our financial systems. Previously completed initiatives within Transformation 2.0 are described in Supplemental Information - Items Affecting Comparability in our Annual Report on Form 10-K for the year ended December 31, 2024. Costs associated with Transformation 2.0 have primarily consisted of compensation and benefit costs related to reductions in our workforce and fees paid to third-party consultants. As of June 30, 2025, we have incurred $811 million of costs as part of Transformation 2.0, with anticipated remaining costs of approximately $75 million primarily related to completion of our technology initiatives. We expect any remaining costs to be incurred during 2025. These technology initiatives are expected to provide enhanced reporting quality for both internal and external purposes in part through simplification and standardization of data to better enable migration into cloud-based tools and automation, including transitioning general ledger, consolidation, and planning tools along with U.S. payroll from older programs and software supporting our freight forwarding business. These efforts are expected to reduce the need for future investments and we began realizing benefits therefrom during the second quarter of 2025.

Fit to Serve: In 2023, a number of factors, including macroeconomic headwinds and volume diversion resulting from our labor negotiations with the International Brotherhood of Teamsters, contributed to volume declines in our U.S. Domestic Package business. In addition, our International Package and Supply Chain Solutions businesses were also negatively impacted by a number of challenging macroeconomic conditions during 2023. In response to these factors, we undertook our Fit to Serve initiative with the intent to right-size our business to create a more efficient operating model that was more responsive to market dynamics through a workforce reduction of approximately 14,000 positions, primarily within management. As of June 30, 2025, we have incurred total costs of $444 million under Fit to Serve, which primarily consist of benefit costs related to reductions in our workforce. We expect to incur remaining costs of approximately $20 million in 2025 as a part of this initiative, which should be complete in 2025. We have achieved savings of approximately $1.0 billion through this program via reductions in our compensation and benefit expense.

Network Reconfiguration and Efficiency Reimagined: As previously disclosed, our Network of the Future initiative is intended to enhance the efficiency of our network through automation and operational sort consolidation in our U.S. Domestic network. In connection with our strategic execution of planned volume declines from our largest customer, we began our Network Reconfiguration initiative, which is an expansion of Network of the Future and has led and will continue to lead to consolidations of our facilities and workforce as well as an end-to-end process redesign. We launched our Efficiency Reimagined initiatives to undertake the end-to-end process redesign effort which will align our organizational processes to the network reconfiguration. In connection therewith, we expect to reduce our operational workforce by approximately 20,000 positions. During the second quarter of 2025, we closed daily operations at 74 leased and owned buildings, 68 of which have been permanently closed. We continue to review expected changes in volume in our integrated air and ground network to identify additional buildings for closure.

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RESULTS OF OPERATIONS

In connection with the Network Reconfiguration and Efficiency Reimagined programs, we expect to exclude between $400 and $650 million in non-GAAP adjusted expense during 2025, related primarily to third-party consulting fees, employee separation benefits and certain programmatic expenses. We expect the costs associated with these actions may increase should we determine to close additional buildings. In addition, we believe that workforce reductions may require a remeasurement of certain U.S. pension and postretirement benefit plan obligations and assets during 2025. We are not yet able to estimate the timing of potential impact of such an event. As of June 30, 2025, we have incurred costs related to these programs of $126 million. We have begun to realize the expected benefits from these programs and, as previously disclosed, expect to achieve $3.5 billion in savings from these programs in 2025.

We do not consider the related costs to be ordinary because each program involves separate and distinct activities that may span multiple periods and are not expected to drive incremental revenue, and because the scope of the programs exceeds that of routine, ongoing efforts to enhance profitability. These initiatives are in addition to ordinary, ongoing efforts to enhance our business performance.

In addition, we have incurred and expect to continue to incur other costs and benefits associated with our Network Reconfiguration programs and anticipated lower volumes, including early asset retirement, lease related costs and gains from the sale of properties. It is our intention to exit or abandon leases, sell property and transfer or dispose of equipment associated with closed facilities. During the first half of 2025, we incurred $37 million in accelerated depreciation and asset retirement obligations related to closed facilities and abandoned equipment and $34 million in gains on sale of properties. We expect the costs associated with these actions may increase should we determine to close additional buildings.

For more information regarding transformation strategy costs, see note 17 to the unaudited, consolidated financial statements.

Goodwill and Asset Impairment Charges

We exclude the impact of goodwill and asset impairment charges, including impairments of certain long-lived assets and equity method investments, which we do not consider when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards. For more information regarding goodwill and asset impairment charges, see note 5 and note 8 to the unaudited, consolidated financial statements.

Expense for Regulatory Matter

We exclude the impact of a charge to settle a regulatory matter that we consider to be unrelated to our ongoing operations and that we do not expect to recur. For more information regarding this matter, see note 10 in our Annual Report on Form 10-K for the year ended December 31, 2024.

One-Time Payment for International Regulatory Matter

We exclude the impact of a payment to settle an international tax regulatory matter from the second quarter of 2024. We do not believe this payment was a component of our ongoing operations and we do not expect this or similar payments to recur. For more information regarding this matter, see note 10 in our Annual Report on Form 10-K for the year ended December 31, 2024.

Gain and Losses Related to Divestitures

We exclude the impact of gains (or losses) related to the divestiture of certain businesses. We do not consider these transactions when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards. For more information regarding gains and losses related to divestitures, see note 18 to the unaudited, consolidated financial statements.

Reversal of Income Tax Valuation Allowance

We previously recorded non-GAAP adjustments for transactions that resulted in capital loss deferred tax assets not expected to be realized. We now expect a portion of these capital losses to be realized in future periods. We supplement our presentation with non-GAAP measures that exclude the impact of subsequent changes in the valuation allowances against these deferred tax assets as we believe such treatment is consistent with how the valuation allowance was initially established. For more information regarding the reversal of this income tax valuation allowance, see note 16 to the unaudited, consolidated financial statements.

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Non-GAAP Adjusted Cost per Piece

We evaluate the efficiency of our operations using various metrics, including non-GAAP adjusted cost per piece. Non-GAAP adjusted cost per piece is calculated as non-GAAP adjusted operating expenses in a period divided by total volume for that period. Because non-GAAP 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.

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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. There were no significant changes to our allocation methodologies in the second quarter of 2025.

As a normal part of managing our air network, we routinely idle aircraft and engines temporarily for maintenance or to adjust network capacity. As of June 30, 2025, we had five aircraft temporarily idled for an average period of approximately eight months 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. We expect these aircraft to return to revenue service during the second half of 2025. During the second quarter of 2025, we retired two fully depreciated MD-11s from operational service. We continue to evaluate possible retirements within our fleet and expect to retire one fully depreciated MD-11 from operational service in the second half of 2025.

We test goodwill 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 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, long-term growth rates and market comparables. We are also required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.

Approximately $1.2 billion of our consolidated goodwill balance of $4.8 billion is represented by our Global Freight Forwarding, Roadie and Global Logistics and Distribution reporting units which, based on our July 1, 2024 annual impairment evaluation, exhibited a limited excess of fair value above carrying value and reflect a greater risk of an impairment occurring in future periods. During the first quarter of 2025, our Mail Innovations reporting unit experienced cost increases higher than our expectations due to increases in purchased transportation rates, resulting from the expiration of a contract with our primary vendor. These cost increases began to dissipate in the second quarter of 2025 as we started utilizing alternative vendors. In the second quarter of 2025, we also took action to address the revenue quality in this business, and experienced improvements therein. Depending on the outcome of these actions, our expectations for the future performance of this reporting unit could be materially affected. Approximately $295 million in goodwill is represented by our Mail Innovations reporting unit. Additionally, Frigo-Trans, which was acquired during the first half of 2025, is now reported as part of our Healthcare Logistics and Distribution reporting unit.

We continue to monitor all of our reporting units subsequent to the most recent annual test and, 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, 2025, challenging macroeconomic and uncertain geopolitical conditions, changes in global trade policy, actual reporting unit performance, revisions to our forecasts of future performance or other factors, including market comparables, may negatively impact certain estimates and assumptions that we use in determining our reporting units' fair values. Such impacts may be more pronounced for reporting units whose fair values do not significantly exceed their carrying values. Any of these factors or a combination thereof could result in an impairment charge in one or more of our reporting units during a future period.

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U.S. Domestic Package

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$%20252024$%
Average Daily Package Volume (in thousands):
Next Day Air1,4291,559(8.3)%1,4741,574(6.4)%
Deferred825991(16.8)%8451,019(17.1)%
Ground14,29915,314(6.6)%14,67215,376(4.6)%
Total Average Daily Package Volume16,55317,864(7.3)%16,99117,969(5.4)%
Average Revenue Per Piece:
Next Day Air$25.07$23.14$1.938.3%$25.06$23.14$1.928.3%
Deferred19.3917.451.9411.1%19.4717.491.9811.3%
Ground11.4610.920.544.9%11.4610.990.474.3%
Total Average Revenue Per Piece$13.03$12.35$0.685.5%$13.04$12.42$0.625.0%
Operating Days in Period6464126127
Revenue (in millions):
Next Day Air$2,293$2,309$(16)(0.7)%$4,654$4,625$290.6%
Deferred1,0241,107(83)(7.5)%2,0732,263(190)(8.4)%
Ground10,48410,703(219)(2.0)%21,19321,465(272)(1.3)%
Cargo and Other28282200243.9%623114509446.5%
Total Revenue$14,083$14,201$(118)(0.8)%$28,543$28,467$760.3%
Operating Expenses (in millions):
Operating Expenses$13,167$13,213$(46)(0.3)%$26,648$26,646$2—%
Non-GAAP adjustments to Operating Expenses
Transformation Strategy Costs(66)(8)(58)725.0%(98)(17)(81)476.5%
Goodwill and Asset Impairment Charges———N/A—(5)5(100.0)%
Non-GAAP Adjusted Operating Expenses$13,101$13,205$(104)(0.8)%$26,550$26,624$(74)(0.3)%
Operating Profit (in millions) and Operating Margin:
Operating Profit$916$988$(72)(7.3)%$1,895$1,821$744.1%
Non-GAAP Adjusted Operating Profit$982$996$(14)(1.4)%$1,993$1,843$1508.1%
Operating Margin6.5%7.0%6.6%6.4%
Non-GAAP Adjusted Operating Margin7.0%7.0%7.0%6.5%

Revenue

The change in revenue was due to the following:

VolumeRates / Product MixFuel SurchargeTotal Revenue Change
Revenue Change Drivers:
Second quarter 2025 vs. 2024(7.3)%6.2%0.3%(0.8)%
Year to date 2025 vs. 2024(6.2)%6.4%0.1%0.3%

Comparative results were impacted by one less operating day in the first half of 2025. The growth in rates and product mix shown above includes the growth we experienced in our air cargo product during both the second quarter and the year-to-date periods in 2025, as air cargo under our contract with the USPS was fully onboarded during the fourth quarter of 2024. Air cargo is measured by dimensional weight, not on a per piece basis, and therefore does not impact the volume and revenue per piece discussions below.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

Volume

Average daily volume decreased for both the quarter and year-to-date periods, driven by our strategic execution of planned volume declines from our largest customer and decreases in our Ground Saver product as a result of our pricing actions on certain e-commerce volume, as well as macro dynamics on market demand. As a result, residential and commercial volume decreased for both the quarter and year-to-date periods. Business-to-business volume decreased 2.3% in the quarter (down 0.5% year to date), primarily driven by demand softness within the manufacturing and retail sectors partially offset by continued volume growth from SMBs who leverage our Digital Access Program and growth in returns. Business-to-consumer volume decreased 10.9% in the quarter (down 9.0% year to date), as a result of the factors discussed above, with declines from large customers, partially offset by continued growth in SMB from our Digital Access Program.

Within our Air products, average daily volume decreased 11.6% in the quarter (down 10.6% year to date), driven by the continued execution under the contract terms with our largest customer, partially offset by increased demand from the healthcare and technology sectors.

Ground average daily volume decreased 6.6% for the quarter (down 4.6% year to date) driven by residential volume decreases of 10.0% for the quarter (down 7.9% year to date) which were primarily due to pricing actions we took, as described above.

Revenue Per Piece

Revenue per piece increased 5.5% for the quarter (up 5.0% year to date) due to favorable trends in customer and product mix as a result of the pricing actions discussed above. Package characteristics and fuel surcharges also contributed to the increase in revenue per piece.

Revenue per piece from both our Air and Ground products increased for both the quarter and year-to-date periods. In December 2024, we implemented an average 5.9% net increase in base and accessorial rates for both our Air and Ground products.

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.

Operating Expenses

Operating expenses and non-GAAP adjusted operating expenses were flat for both the quarter and year-to-date periods as a result of the decline in volume, and the following:

  • Ground and rail transportation decreased $406 million for the quarter (down $537 million year to date) driven by the insourcing of our Ground Saver product.

  • Compensation and Benefits for our Air and Ground products increased $222 million for the quarter (up $341 million year to date) primarily driven by increased stops associated with the insourcing of our Ground Saver product and the impact of health and welfare and wage rate increases for our union workforce. This was partially offset by a decrease in management compensation cost due to a reduction in incentive compensation expense.

  • Air cargo expense increased $180 million for the quarter (up $258 million year to date) as we fully onboarded our contract with the USPS during the fourth quarter of 2024.

Our non-GAAP adjusted operating expenses exclude the impact of asset impairment charges of $5 million in the 2024 year-to-date period as well as transformation strategy costs of $66 and $8 million within the U.S. Domestic Package segment in the second quarters of 2025 and 2024, respectively and $98 and $17 million in the 2025 and 2024 year-to-date periods, respectively. Transformation strategy costs reflected within the U.S. Domestic Package segment during the 2025 and 2024 periods relate to our Fit to Serve and Transformation 2.0 programs. These costs in the 2025 periods also include costs related to our Network Reconfiguration and Efficiency Reimagined programs. Within these programs, we incurred compensation and benefits costs, as well as fees paid to outside professional service providers. See Supplemental Information - Items Affecting Comparability for additional discussion of transformation strategy costs excluded from our non-GAAP financial measures.

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Cost per piece increased 6.1% during the second quarter of 2025 (up 4.9% year to date). Non-GAAP adjusted cost per piece increased 5.6% during the second quarter of 2025 (up 4.6% year to date). The increase in cost per piece was primarily driven by increased compensation and benefits costs from Ground Saver volume in addition to lower average daily volume, due primarily to the strategic execution of planned volume declines from our largest customer as discussed above, which were not fully offset by the benefits of our cost saving initiatives.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $72 million for the quarter (up $74 million year to date), with operating margin decreasing 50 basis points to 6.5% for the quarter (up 20 basis points to 6.6% year to date). Non-GAAP adjusted operating profit decreased $14 million for the quarter (up $150 million year to date), with non-GAAP adjusted operating margin remaining unchanged at 7.0% for the quarter (up 50 basis points to 7.0% year to date). Non-GAAP adjusted operating profit excludes the impact of operating expense adjustments discussed above.

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International Package

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$%20252024$%
Average Daily Package Volume (in thousands):
Domestic1,5071,4851.5%1,5411,4943.1%
Export1,6811,5846.1%1,7251,6027.7%
Total Average Daily Package Volume3,1883,0693.9%3,2663,0965.5%
Average Revenue Per Piece:
Domestic$8.61$8.10$0.516.3%$8.25$8.05$0.202.5%
Export32.3833.90(1.52)(4.5)%31.8733.36(1.49)(4.5)%
Total Average Revenue Per Piece$21.14$21.42$(0.28)(1.3)%$20.73$21.15$(0.42)(2.0)%
Operating Days in Period6464126127
Revenue (in millions):
Domestic$830$770$607.8%$1,601$1,528$734.8%
Export3,4843,437471.4%6,9286,7871412.1%
Cargo and Other17116384.9%329311185.8%
Total Revenue$4,485$4,370$1152.6%$8,858$8,626$2322.7%
Operating Expenses (in millions):
Operating Expenses$3,813$3,652$1614.4%$7,545$7,252$2934.0%
Non-GAAP Adjustments to Operating Expenses
Transformation Strategy Costs(10)(18)8(44.4)%(23)(42)19(45.2)%
One-Time International Regulatory Matter—(88)88(100.0)%—(88)88(100.0)%
Asset Impairment Charges———N/A—(2)2(100.0)%
Non-GAAP Adjusted Operating Expenses$3,803$3,546$2577.2%$7,522$7,120$4025.6%
Operating Profit (in millions) and Operating Margin:
Operating Profit$672$718$(46)(6.4)%$1,313$1,374$(61)(4.4)%
Non-GAAP Adjusted Operating Profit$682$824$(142)(17.2)%$1,336$1,506$(170)(11.3)%
Operating Margin15.0%16.4%14.8%15.9%
Non-GAAP Adjusted Operating Margin15.2%18.9%15.1%17.5%
Currency Benefit / (Cost) – (in millions)(1):
Revenue$47$(38)
Operating Expenses(62)13
Operating Profit$(15)$(25)

(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 2025 vs. 20243.9%(1.5)%(0.8)%1.0%2.6%
Year to date 2025 vs. 20244.5%(1.3)%(0.1)%(0.4)%2.7%

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Comparative results were impacted by one less operating day in the first half of 2025. Global trade policy changes including enacted tariffs and the de minimis exclusions took effect during the second quarter and resulted in shifting trade lane volumes and reduced segment margin.

Volume

Average daily volume increased for both the quarter and year-to-date periods, driven by increases in both our domestic and export products in all regions.

Domestic average daily volume increased 1.5% for the quarter and 3.1% year to date primarily driven by retail customers in Canada.

Export average daily volume increased 6.1% for the quarter and 7.7% year to date due to SMB and enterprise customers in Europe, the Indian sub-continent, Middle East and Africa ("EMEAI") and retail customers in the Americas trade lanes. The Asia trade lanes were impacted by U.S. trade policy changes during the quarter, which resulted in a decline on our China-to-US trade lane. This decline was partially offset by growth on our China to the rest of the world trade lanes, and from the rest of world into the U.S.

Export premium products increased 7.0% for the quarter (up 8.7% year to date) driven by increases in Worldwide and Transborder Express products. Transborder Express product volume increased driven by European customers in the healthcare industry. Worldwide Express product volume increased as a result of accelerated U.S. inbound services in anticipation of tariff changes. Export non-premium product volumes increased 5.2% for the quarter (up 8.4% year to date), primarily driven by increases in Transborder Standard products from SMBs primarily within the retail sector.

Revenue Per Piece

Revenue per piece decreased 1.3% for the quarter (down 2.0% year to date) primarily due to a shift in product mix to Transborder Standard from our Worldwide products and lower demand-related surcharges, partially offset by favorable currency movements during the second quarter. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.

Domestic revenue per piece increased 6.3% for the quarter (up 2.5% year to date) primarily driven by changes in EMEAI customer mix.

Export revenue per piece declined 4.5% both for the quarter and year-to-date periods, primarily due to declines in demand-related surcharges and an unfavorable shift in product mix.

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.

Operating Expenses

Operating expenses increased for both the quarter and year-to-date periods. Pickup and delivery expenses increased $152 million (up $239 million year to date), driven by increased volumes and merit compensation increases as well as the impact of the implementation of weekend operations within Europe. Costs of operating our integrated air and ground network increased $48 million (up $87 million year to date) primarily due to increased air charters and block hours as we aligned our network to meet higher volume demands.

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Non-GAAP adjusted operating expenses exclude the impact of a one-time international regulatory matter of $88 million in the second quarter and year-to-date periods of 2024 and a $2 million asset impairment charge in the year-to-date period of 2024. Additionally, non-GAAP adjusted operating expenses exclude activities associated with our transformation strategy, which were $10 and $18 million in the second quarters of 2025 and 2024, respectively, and $23 and $42 million in the 2025 and 2024 year-to-date periods, respectively. Transformation strategy costs reflected within the International Package segment during both periods were related to our Fit to Serve and our Efficiency Reimagined programs. Within these programs, we incurred compensation and benefits costs, as well as fees paid to outside professional service providers. See Supplemental Information - Items Affecting Comparability for additional discussion of transformation strategy costs excluded from our non-GAAP adjusted financial measures.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $46 million for the quarter ($61 million year to date), with operating margin decreasing 140 basis points to 15.0% (down 110 basis points to 14.8% year to date). Non-GAAP adjusted operating profit decreased $142 million for the quarter ($170 million year to date) and non-GAAP adjusted operating margin decreased 370 basis points to 15.2% (down 240 basis points to 15.1% year to date).

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Supply Chain Solutions

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$%20252024$%
Revenue (in millions):
Forwarding$732$1,315$(583)(44.3)%$1,458$2,595$(1,137)(43.8)%
Logistics1,4761,546(70)(4.5)%3,0483,088(40)(1.3)%
Other SCS4453865915.3%86074811215.0%
Total Revenue$2,653$3,247$(594)(18.3)%$5,366$6,431$(1,065)(16.6)%
Operating Expenses (in millions):
Operating Expenses$2,419$3,009$(590)(19.6)%$5,086$6,069$(983)(16.2)%
Non-GAAP Adjustments to Operating Expenses
Transformation Strategy Costs2(1)3N/A(11)(14)3(21.4)%
Gain on Divestiture20—20N/A20—20N/A
Goodwill and Asset Impairment Charges———N/A(39)(41)2(4.9)%
Expense for Regulatory Matter—(5)5(100.0)%—(45)45(100.0)%
Non-GAAP Adjusted Operating Expenses$2,441$3,003$(562)(18.7)%$5,056$5,969$(913)(15.3)%
Operating Profit (in millions) and Operating Margin:
Operating Profit$234$238$(4)(1.7)%$280$362$(82)(22.7)%
Non-GAAP Adjusted Operating Profit$212$244$(32)(13.1)%$310$462$(152)(32.9)%
Operating Margin8.8%7.3%5.2%5.6%
Non-GAAP Adjusted Operating Margin8.0%7.5%5.8%7.2%
Currency Benefit / (Cost) – (in millions)(1):
Revenue$23$(24)
Operating Expenses(24)32
Operating Profit$(1)$8

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

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$20252024$
Non-GAAP adjustments to Operating Expenses (in millions):
Transformation Strategy Costs
Forwarding$9$—$9$15$7$8
Logistics(11)1(12)(4)7(11)
Total Transformation Strategy Costs$(2)$1$(3)$11$14$(3)
Gain on Divestiture
Other SCS(20)—(20)(20)—(20)
Total Gain on Divestiture$(20)$—$(20)$(20)$—$(20)
Goodwill and Asset Impairment Charges
Logistics————41(41)
Other SCS———39—39
Total Goodwill and Asset Impairment Charges$—$—$—$39$41$(2)
Expense for Regulatory Matter
Other SCS—5(5)—45(45)
Total Expense for Regulatory Matter$—$5$(5)$—$45$(45)
Total non-GAAP Adjustments to Operating Expenses$(22)$6$(28)$30$100$(70)

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Revenue

Total revenue in Supply Chain Solutions decreased for both the quarter and year-to-date periods primarily due to a decline in Forwarding and Logistics revenue, partially offset by an increase in our other businesses.

Within our Forwarding businesses, revenue decreased $583 million for the quarter (down $1.1 billion year to date), primarily driven by the impact of the third quarter 2024 divestiture of Coyote, which contributed $539 million of revenue in the 2024 second quarter ($1.1 billion in the 2024 year-to-date period). Revenue within our other Forwarding businesses also declined by a total of $45 million during the quarter (down $36 million year to date), primarily driven by demand softness from changing trade policies and tariff uncertainty, particularly on our China-to-US trade lane, which negatively impacted both our volume and rates.

Within our Logistics businesses, revenue decreased $70 million for the quarter (down $40 million year to date). Revenue in our Mail Innovations business decreased $109 million (down $55 million year to date), driven by volume declines resulting from initiatives to improve revenue quality. The declines in Mail Innovations revenue were partially offset by $41 million of revenue increases in our healthcare logistics business for the quarter (up $29 million year to date), due to our January 2025 acquisition of Frigo-Trans and year-over-year growth in other healthcare businesses.

Revenue from our other businesses within Supply Chain Solutions increased $59 million for the quarter (up $112 million year to date) primarily driven by growth in our digital businesses, which increased $61 million for the quarter (up $109 million year to date) primarily driven by volume growth from Roadie as well as UPS Capital.

Operating Expenses

Total operating expenses and non-GAAP adjusted operating expenses within Supply Chain Solutions decreased for the quarter and year-to-date periods for the reasons described below. Non-GAAP adjusted operating expenses within our Forwarding, Logistics and other Supply Chain Solutions businesses exclude expenses related to financial systems and other projects undertaken as part of our transformation strategy as shown in the table above.

Forwarding operating expenses, and non-GAAP adjusted operating expenses, decreased $565 and $574 million, respectively, during the quarter (both decreasing $1.1 billion year to date), driven primarily by the impact of the third quarter 2024 divestiture of Coyote. Operating expenses, including non-GAAP adjusted operating expenses, in our other forwarding businesses decreased $43 million for the quarter (down $30 million year to date), primarily due to a decrease in market rates for third-party air and ocean transportation.

Logistics operating expenses and non-GAAP adjusted operating expenses decreased $28 and $16 million, respectively, for the quarter (up $107 and $159 million year to date, respectively) primarily driven by volume declines and lower purchased transportation costs in our Mail Innovations business. This was partially offset by increases across our other Logistics businesses. Year to date, expenses associated with our Mail Innovations business increased primarily driven by higher purchased transportation rates during the first quarter, resulting from the expiration of a contract with our primary vendor. These cost increases began to dissipate in the second quarter of 2025 as we started utilizing alternative vendors. We also took action to address the revenue quality in this business, and experienced improvements therein. Non-GAAP adjusted operating expenses within Logistics in the second quarter of 2024 excluded a $41 million write-down related to certain trade names.

Operating expenses and non-GAAP adjusted operating expenses in our other Supply Chain Solutions businesses increased $3 and $28 million, respectively, for the quarter (up $23 and $49 million, year to date, respectively). Within our digital businesses, operating expenses increased $39 million during the quarter and $52 million, year to date, primarily due to volume growth at Roadie. During the second quarter, non-GAAP adjusted operating expenses in our other Supply Chain Solutions businesses exclude a $20 million gain on divestiture and year to date non-GAAP adjusted operating expenses exclude a $39 million impairment charge, both related to a business within UPS Digital. Non-GAAP adjusted operating expenses in these businesses in the prior year periods exclude a $5 and $45 million expense related to a regulatory matter in the 2024 second quarter and year-to-date periods, respectively.

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Transformation strategy costs reflected within Supply Chain Solutions during the quarter and year-to-date periods are related to our Fit to Serve, Transformation 2.0 and Network Reconfiguration and Efficiency Reimagined programs. Within Transformation 2.0, we incurred costs related to financial system investments in Forwarding during both periods. Within Fit to Serve, we incurred severance costs in both the second quarter and year-to-date periods of 2025 and 2024 as we right-size our business. Within Efficiency Reimagined, we incurred costs related to end-to-end process redesign during both periods. See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP adjusted financial measures.

Operating Profit and Margin

As a result of the factors described above, total operating profit decreased $4 million for the second quarter (down

$82 million year to date), with operating margin increasing 150 basis points to 8.8% (down 40 basis points to 5.2% year to date). On a non-GAAP adjusted basis, operating profit decreased $32 million for the second quarter (down $152 million year to date) with non-GAAP adjusted operating margin increasing 50 basis points to 8.0% (down 140 basis points to 5.8% year to date). Non-GAAP adjusted operating profit excludes the impact of operating expense adjustments discussed above.

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Consolidated Operating Expenses

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$%20252024$%
Operating Expenses (in millions):
Compensation and benefits$11,626$11,503$1231.1%$23,453$23,142$3111.3%
Transformation Strategy Costs(50)(20)(30)150.0%(74)(51)(23)45.1%
Non-GAAP Adjusted Compensation and Benefits$11,576$11,483$930.8%$23,379$23,091$2881.2%
Repairs and maintenance$755$734$212.9%$1,487$1,452$352.4%
Depreciation and amortization936887495.5%1,8481,785633.5%
Purchased transportation2,5223,273(751)(22.9)%5,2526,519(1,267)(19.4)%
Fuel1,0581,126(68)(6.0)%2,1162,186(70)(3.2)%
Other occupancy5444925210.6%1,1511,056959.0%
Other expenses1,9581,859995.3%3,9723,8271453.8%
Total Other Expenses7,7738,371(598)(7.1)%15,82616,825(999)(5.9)%
Gain on Divestiture20—20N/A20—20N/A
Transformation Strategy Costs(24)(7)(17)242.9%(58)(22)(36)163.6%
Goodwill and Asset Impairment Charges———N/A(39)(48)9(18.8)%
Expense for Regulatory Matter—(5)5(100.0)%—(45)45(100.0)%
One-Time Payment for International Regulatory Matter—(88)88(100.0)%—(88)88(100.0)%
Non-GAAP Adjusted Total Other Expenses$7,769$8,271$(502)(6.1)%$15,749$16,622(873)(5.3)%
Total Operating Expenses$19,399$19,874$(475)(2.4)%$39,279$39,967$(688)(1.7)%
Non-GAAP Adjusted Total Operating Expenses$19,345$19,754$(409)(2.1)%$39,128$39,713$(585)(1.5)%
Currency (Benefit) / Cost - (in millions)(1)$86$(45)

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

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Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$20252024$
Non-GAAP Adjustments to Operating Expenses (in millions):
Transformation Strategy Costs:
Compensation$4$8$(4)$7$13$(6)
Benefits461234673829
Other expenses24717582236
Total Transformation Strategy Costs742747$132$73$59
Gain on Divestiture
Other expenses$(20)—(20)$(20)$—$(20)
Total Gain on Divestiture(20)—(20)(20)—(20)
Expense for Regulatory Matter
Other expenses$—5(5)$—$45$(45)
Total Expense for Regulatory Matter—5(5)—45(45)
One-Time Payment for International Regulatory Matter
Other expenses$—88(88)$—$88$(88)
Total One-Time Payment for International Regulatory Matter—88(88)—88(88)
Goodwill and Asset Impairment Charges
Other expenses$———$39$48$(9)
Total Asset Impairment Charges———3948(9)
Total Non-GAAP Adjustments to Operating Expenses$54$120$(66)$151$254$(103)

Compensation and Benefits

Total compensation expense and non-GAAP adjusted total compensation expense increased for both the quarter and year-to-date periods. Compensation costs increased $50 million for the quarter (up $285 million year to date) and, on a non-GAAP adjusted basis, increased $56 million for the quarter (up $292 million year to date). The principal factors contributing to the overall increases were:

  • Direct labor costs increased $188 million for the quarter (up $462 million year to date). Additional stops resulting from insourcing our Ground Saver product increased direct labor costs by $229 million for the quarter ($527 million increase year to date). Wage rate growth was responsible for $128 million of the cost increase ($260 million increase year to date) driven by increased seniority within our union workforce, contractual wage rate increases for our U.S. union workforce and higher overtime. International labor cost increased $29 million for the quarter (up $42 million year to date) due to merit compensation increases and the implementation of weekend operations within Europe. Other payroll costs for flight operations increased $35 million for the quarter due to increased activity (up $75 million year to date). These increases were partially offset by the impact of decreases in volume, which reduced direct labor expense by $228 million for the quarter (down $427 million year to date). Further expected growth in compensation expense is expected to be partially offset by the anticipated impact from workforce reductions as we execute on our Network Reconfiguration and Efficiency Reimagined initiatives.

  • Indirect labor costs increased $23 million for the quarter (up $13 million year to date) due to higher administrative and overtime costs.

  • Management compensation costs decreased $162 million for the quarter (down $191 million year to date) due to lower overall headcount and a reduction in incentive compensation expense.

Benefits costs increased $73 million for the quarter (up $26 million year to date) and on a non-GAAP adjusted basis increased $37 million (down $4 million year to date). The principal factors driving these changes were:

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  • Health and welfare costs increased $47 million for the quarter (up $65 million year to date), driven by increased contributions to multiemployer plans as a result of contractually-mandated rate increases.

  • Other employee benefits expense increased $47 million for the quarter (up $41 million year to date) due to higher separation costs as we continue to right-size our business.

  • Accruals for paid time off, payroll taxes and other costs increased $22 million for the quarter (up $45 million year to date) primarily due to the impact of insourcing our Ground Saver product and higher wages.

  • Workers' compensation expense increased $12 million for the quarter (up $10 million year to date) due to less favorable developments in prior year claims partially offset by the impact from a reduction in overall hours worked.

  • Pension and other postretirement benefits costs decreased $56 million for the quarter (down $137 million year to date). These reductions were driven by the impact of demographic updates and workforce reductions, a decrease in the cost of company-sponsored defined benefit plans driven by lower service cost resulting from higher discount rates, and decreased expense for multiemployer plans.

Non-GAAP adjusted operating expenses in the second quarter and year-to-date periods of 2025 and 2024 exclude the impact of costs incurred under our transformation strategy programs, Fit to Serve, Transformation 2.0 and Network Reconfiguration and Efficiency Reimagined initiatives, and primarily consisted of other employee benefits expense and related payroll tax expense. Compensation and benefits expenses under these programs during the second quarter of 2025 were $50 million ($74 million year to date), an increase of $30 million for the quarter (up $23 million year to date) as compared to the same period of 2024. See Supplemental Information - Items Affecting Comparability for additional discussion of items excluded from our non-GAAP financial measures.

Repairs and Maintenance

Repairs and maintenance cost increased in both the second quarter and year-to-date periods due to increased ground network usage and an increase in parts and labor for aircraft.

Depreciation and Amortization

Depreciation and amortization expense increased in both the second quarter and year-to-date periods due to capital asset additions and building closures during the second quarter of 2025 which shortened useful lives and accelerated depreciation.

Purchased Transportation

Third-party transportation expense charged to us by air, ocean and ground carriers decreased $751 million for the quarter (down $1.3 billion year to date). The changes were primarily driven by:

  • Ground transportation decreased $623 million for the quarter (down $1.1 billion year to date) primarily due to the divestiture of Coyote in 2024 and the impact of insourcing our Ground Saver Product, as well as lower overall volume.

  • Third-party fuel surcharges decreased $91 million for the quarter (down $182 million year to date) primarily due to the divestiture of Coyote.

  • Rail transportation decreased $30 million for the quarter (down $49 million year to date) primarily due to lower volume.

Fuel Expense

The decrease in fuel expense for both the quarter and year-to-date periods was mainly attributable to lower prices for jet fuel, diesel and gasoline, partially offset by the impact of increases in flight activity. 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 $52 million for the quarter (up $95 million year to date) due to an increase in electrical and power utilities, rent expense, other occupancy related expenses such as taxes and permits and weather-related costs.

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Other Expenses

Other expenses increased $99 million for the quarter (up $145 million year to date), and on a non-GAAP adjusted basis, increased $195 million for the quarter (up $271 million year to date). The principal factors contributing to the increases were:

  • Auto liability insurance costs increased $43 million for the quarter (up $85 million year to date) driven by the unfavorable development of old claims.

  • Technology expense increased $28 million for the quarter (up $42 million year to date) due to higher software costs and rental costs for tech equipment.

  • Third-party consulting expense increased $27 million for the quarter (up $78 million year to date) primarily driven by cost associated with our transformation initiatives.

  • Commissions paid increased $14 million for the quarter (up $62 million year to date) primarily due to growth in our Digital Access Program.

These increases were offset by $28 million in gains from asset disposals for the quarter ($118 million year to date) compared to immaterial impacts in the 2024 periods.

Non-GAAP adjusted operating expenses exclude the impact of:

  • In the second quarter and year-to-date 2024 periods, we incurred $88 million of international regulatory expense. We did not have any similar expenses in 2025.

  • In the 2025 year-to-date period we recognized expense of $39 million related to the write down in the value of certain assets within our UPS Digital business. A gain of $20 million from the divestiture of the same business was recognized in the second quarter of 2025. In the first quarter of 2024 we recognized expense of $48 million related to the impairment of trade names and software.

  • Transformation strategy costs of $24 million for the quarter ($58 million year to date), an increase of $17 million for the quarter ($36 million year to date) as a result of additional third-party consulting costs associated with our transformation initiatives.

  • In the second quarter and year-to-date 2024 periods, we incurred expenses of $5 and $45 million, respectively, related to a regulatory matter. We did not have any similar expenses in 2025.

We expect to incur additional other expenses under our Fit to Serve, Transformation 2.0, Network Reconfiguration and Efficiency Reimagined programs during the remainder of 2025. See Supplemental Information - Items Affecting Comparability for additional discussion on the types, amounts and timing thereof.

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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, 2025 and 2024 (in millions):

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$%20252024$%
Investment Income and Other$78$137$(59)(43.1)%$157$255$(98)(38.4)%
Goodwill and Asset Impairment Charges———N/A19—19N/A
Non-GAAP Adjusted Investment Income and Other78137(59)(43.1)%176255(79)(31.0)%
Interest Expense(238)(212)(26)12.3%(460)(407)(53)13.0%
Interest Expense Associated with One-Time Payment for International Regulatory Matter—6(6)(100.0)%—6(6)(100.0)%
Non-GAAP Adjusted Interest Expense$(238)$(206)$(32)15.5%$(460)$(401)$(59)14.7%
Total Other Income (Expense)$(160)$(75)$(85)113.3%$(303)$(152)$(151)99.3%
Non-GAAP Adjusted Total Other Income (Expense)$(160)$(69)$(91)131.9%$(284)$(146)$(138)94.5%

Investment Income and Other

Investment income and other decreased by $59 million in the quarter and $98 million year to date, primarily driven by lower rates on lower average invested balances, year-over-year changes in fair value of certain non-current investments, and reductions in pension income. The reduction in pension income was driven by an increase in interest cost from overall plan growth and higher discount rates, slightly offset by higher expected returns on pension assets.

For the year-to-date period in 2025, investment income includes a $19 million impairment charge of an equity method investment. Excluding the impact of this impairment, non-GAAP adjusted investment income and other decreased by $79 million year to date.

Interest Expense

Interest expense increased for both the second quarter and year-to-date periods, due to higher average outstanding debt balances.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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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, 2025 and 2024 (in millions):

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20252024$%20252024$%
Income Tax Expense$379$460$(81)(17.6)%$715$883$(168)(19.0)%
Income Tax Impact of:
Transformation Strategy Costs:
Transformation 2.0
Business Portfolio Review(5)(2)(3)150.0%(5)(1)(4)400.0%
Financial Systems43133.3%87114.3%
Transformation 2.0 Total(1)1(2)N/A36(3)(50.0)%
Fit to Serve25(3)(60.0)%611(5)(45.5)%
Network Reconfiguration and Efficiency Reimagined16—16N/A22—22N/A
Total Transformation Strategy Costs17611183.3%31171482.4%
Gain on Divestiture(5)—(5)N/A(5)—(5)N/A
Goodwill and Asset Impairment Charges———N/A913(4)(30.8)%
Reversal of income tax valuation allowance13—13N/A23—23N/A
Non-GAAP Adjusted Income Tax Expense$404$466$(62)(13.3)%$773$913$(140)(15.3)%
Effective Tax Rate22.8%24.6%22.4%25.9%
Non-GAAP Adjusted Effective Tax Rate23.5%23.4%23.0%24.9%

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, 2025, we had $6.3 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 strategy 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,
20252024
Net income$2,470$2,522
Non-cash operating activities (1)2,5272,505
Pension and postretirement medical benefit plan contributions (company-sponsored plans)(921)(150)
Hedge margin receivables and payables—(90)
Income tax receivables and payables(565)(117)
Changes in working capital and other non-current assets and liabilities(833)639
Other operating activities(12)—
Net cash from operating activities$2,666$5,309

(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 $2.6 billion during the first half of the year, driven by:

  • Higher contributions to our company-sponsored, defined benefit pension and postretirement medical plans.

  • Unfavorable changes in working capital driven by:

▪An increase in accounts receivable from higher tariffs, duties and taxes to be paid by our customers.

▪Higher incentive compensation payments in 2025.

▪Higher income tax payments in 2025 due to deferred payments resulting from Hurricane Helene relief.

As of June 30, 2025, approximately $2.7 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 our business operations, planned capital expenditures, pension contributions, planned acquisitions, transformation strategy costs, debt obligations and planned shareowner returns. 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.

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Cash Flows From Investing Activities

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

Six Months Ended June 30,
20252024
Net cash (used in) from investing activities$(2,278)$653
Capital Expenditures:
Buildings, facilities and plant equipment$(1,147)$(712)
Aircraft and parts(120)(426)
Vehicles(193)(461)
Information technology(539)(369)
Total capital expenditures$(1,999)$(1,968)
Capital expenditures as a % of revenue4.7%4.5%
Other Investing Activities:
Proceeds from disposal of businesses, property, plant and equipment$91$28
Net (purchases) sales and maturities of marketable securities$115$2,663
Acquisitions, net of cash acquired$(479)$(66)
Other investing activities$(6)$(4)

For the six months ended June 30, 2025, total capital expenditures slightly increased compared to the 2024 period, primarily driven by increased spending on buildings, facilities and plant equipment and information technology, as we execute our Network of the Future initiative.

These increases were partially offset by:

  • Reduced spending on vehicles due to a focus on replacements at the end of their useful lives.

  • Decreased aircraft expenditures as a result of leveraging finance lease alternatives.

Proceeds from the disposal of businesses, property, plant and equipment were higher primarily due to the impact of a real estate sale-lease back transaction and increased sale of facilities and aircraft during the six months ended June 30, 2025.

Changes in marketable securities were largely driven by the liquidation of our portfolio of $2.7 billion during the six months ended June 30, 2024 to provide additional resources for short-term and strategic operating needs.

Cash paid for acquisitions in the six months ended June 30, 2025 was primarily attributable to the acquisition of Frigo-Trans, and reacquired development area rights for The UPS Store. In the six months ended June 30, 2024, cash paid for acquisitions related to the purchase of development areas for The UPS Store.

Non-cash investing activities for the six months ended June 30, 2025 include:

  • Equity securities valued at $23 million received in connection with a divestiture of a business within UPS Digital.

  • The sale of an equity method investment with a carrying value of $31 million in exchange for a promissory note.

  • Construction-in-progress of $29 million related to the capitalization of construction costs in connection with our build-to-suit financing obligation.

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We have commitments for pending acquisitions and for the purchase of aircraft, vehicles, equipment and real estate to provide for the replacement and enhancement of existing capacity and targeted growth. Our 2025 investment program anticipates investments in technology initiatives and enhanced network capabilities, including approximately $500 million of projects to support our environmental sustainability goals. It also provides for maintenance of buildings, facilities and equipment and replacement of certain aircraft within our fleet. We currently expect our capital expenditures will be approximately $3.5 billion for all of 2025, of which approximately 80 percent will be allocated to network enhancement projects and other technology initiatives. We regularly evaluate opportunities for cost effective financing of assets in order to reduce our capital spending. Future capital spending will depend on a variety of factors, including economic and industry conditions, and financing alternatives.

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Cash Flows From Financing Activities

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

Six Months Ended June 30,
20252024
Net cash (used in) from financing activities$(519)$(2,767)
Share Repurchases:
Cash paid to repurchase shares$(1,000)$—
Number of shares repurchased(8.6)—
Shares outstanding at period end848857
Dividends:
Dividends declared per share$3.28$3.26
Cash paid for dividends$(2,697)$(2,701)
Borrowings:
Net borrowings (repayments) of debt principal$3,091$5
Other Financing Activities:
Cash received for common stock issuances$102$131
Other financing activities$(15)$(202)
Capitalization:
Total debt outstanding at period end$24,740$22,205
Total shareowners' equity at period end15,77717,053
Total capitalization$40,517$39,258

We repurchased 8.6 million shares of class B common stock for $1.0 billion under our stock repurchase program during the six months ended June 30, 2025. We do not currently anticipate further repurchases in 2025. We did not repurchase any shares under our stock repurchase program during the six months ended June 30, 2024. 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 $1.64 per share in 2025, compared to $1.63 in 2024.

Issuances of debt during the six months ended June 30, 2025 consisted of fixed-rate and floating-rate senior notes of varying maturities totaling $4.2 billion. Repayments of debt during the six months ended June 30, 2025 consisted of $1.1 billion of senior notes and finance lease obligations. We received $25 million in proceeds related to other financing arrangements during the six months ended June 30, 2025.

Issuances of debt during the six months ended June 30, 2024 consisted of fixed-rate and floating-rate senior notes of varying maturities totaling $2.8 billion. Repayments of debt in the six months ended June 30, 2024 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, 2025, we had €700 million of fixed-rate senior notes outstanding that mature in 2025 that 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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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
2025
USD$—$954.01%
Total$—

As of June 30, 2025, we had no outstanding balances under our U.S. or European commercial paper programs.

Cash outflows from other financing activities decreased driven by lower tax withholdings on employee stock compensation as a result of previously disclosed changes to the payout structure of our management incentive award program. Cash outflows for this purpose were approximately $12 and $199 million for the six months ended June 30, 2025 and 2024, respectively.

We entered into fourteen new aircraft leases in the second quarter of 2025, which required parent company guarantees of approximately $980 million. For additional information on guarantees, see note 9 to the unaudited, consolidated financial statements.

Except as disclosed above and in our Annual Report on Form 10-K for the year ended December 31, 2024, we do not have 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 in our Annual Report on Form 10-K for the year ended December 31, 2024, except as described below.

Purchase commitments that are legally binding represent contractual agreements for certain capital expenditures and pending acquisitions, including contracts for aircraft, vehicles and facility construction projects. Certain aircraft purchase commitments included in our Annual Report on Form 10-K are now reflected as leases. See note 10 to the unaudited, consolidated financial statements for more information. We continue to evaluate available financing alternatives with respect to our aircraft purchase commitments.

The following table summarizes the expected cash outflows to satisfy our total purchase commitments as of June 30, 2025 (in millions):

Commitment Type2025**(1)**2026202720282029After 2029**(2)**Total
Purchase Commitments$2,635$1,881$969$393$266$860$7,004

(1) Purchase commitments for 2025 include amounts related to any pending acquisitions. Completion of acquisitions is subject to customary regulatory reviews and approvals.

(2) Includes a financing arrangement to be paid over 17 years.

For additional information on 2025 debt issuances and repayments, see note 9 to the unaudited, consolidated financial statements.

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES

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RESULTS OF OPERATIONS

Legal Proceedings and Contingencies

See 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.

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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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