United Parcel Service (UPS) Q3 2026 Earnings Call: Q&A Summary

Q: How will the Driver Choice program exit impact 2027 free cash flow and dividend coverage?

A: Brian Dykes explained that the Driver Choice cash requirement will disappear, driving free cash flow improvement, though pension funding might offset some of that. He confirmed the dividend is safe and secure.

Q: What is the growth algorithm for UPS now that major initiatives are concluding?

A: Carol Tomé highlighted a $922 billion addressable market, focusing on premium segments like health care and high-tech. She noted the mathematical equation for earnings growth involves volume growth and revenue per piece outpacing cost per piece.

Q: How do the cost programs and network reconfiguration set up incremental margins for 2027?

A: Brian Dykes stated these changes are structural, noting that core volume growth outside of Amazon provides a better base. Carol Tomé added that productivity initiatives like RFID sensing are driving efficiency, supporting steady annual margin improvement.

Q: What is the visibility on SMB and B2B volume growth, and what are the components of the revenue per piece versus cost per piece spread for next year?

A: Carol Tomé noted strong SMB and enterprise growth and reduced churn, while Brian Dykes explained that while revenue per piece growth will normalize as Amazon declines wrap, they expect a 200 to 300 basis point base rate and mix benefit to continue.

Q: Can UPS break out of the current 7.5% margin range, and is the fourth quarter margin improvement the right magnitude for future expectations?

A: Brian Dykes and Carol Tomé confirmed they expect steady, consistent margin improvement every year rather than a single step change, driven by better business mix and productivity initiatives.

Q: When will volumes turn positive, and can you explain the acceleration in international margins?

A: Brian Dykes stated Amazon volume comps will persist through the first half of next year, but core volume is growing. Carol Tomé noted international margins are benefiting from growth in profitable trade lanes like China to U.S. and Asia to Asia.

Q: What are the growth expectations for high-value verticals like health care and data centers?

A: Carol Tomé projected 6% annual growth for complex health care logistics and highlighted a $15 billion opportunity in data centers. Matthew Guffey added that their network resiliency is well-suited for these complex, multimodal supply chain needs.

Q: What courageous decisions are needed in the next two years, and how does the new operating model help?

A: Carol Tomé addressed the upcoming 2028 Teamster contract negotiation, noting that her experience with the 2023 contract and the Driver Choice program provides a distinct advantage for future discussions.

Q: Are you seeing incremental competition for premium verticals from Amazon?

A: Carol Tomé stated that the pricing environment remains rational and they have not seen measurable impact from Amazon shipping, noting that their networks are fundamentally different.

Q: Can you provide more detail on peak season volume excluding Amazon, and what new efficiencies will the new leadership structure drive?

A: Carol Tomé clarified that excluding Amazon, volume is growing. Nando Cesarone explained that the new structure aims to create a single intelligent transportation utility by standardizing processes like RFID across the global network.

Q: Is the remaining $1.2 billion of the $3 billion cost savings target still on track for the fourth quarter?

A: Brian Dykes confirmed they are comfortable with the objective, as the savings are tied to hours ramping down with Amazon volume and the completion of the Driver Choice program.