USPS Air Cargo Contract
Q: Did UPS win the USPS air cargo contract profitably?
A: UPS won the air cargo business from the USPS with an innovative solution using their integrated network, allowing them to optimize block hours without purchasing new aircraft. This contract will be margin accretive and EPS accretive beginning in year one and through the life of the contract.

Volume Outlook for Second Half
Q: How are volume expectations shaping up for the second half?
A: UPS expects slight positive volume growth in the second quarter and anticipates a low single-digit increase in the second half, driven by improved sales pipeline visibility and sequentially better trends since August.

EBIT Improvement Drivers
Q: What are the key drivers for EBIT improvement in Q2 versus Q1?
A: The EBIT improvement will be driven by marginal volume growth, natural accretion from maintaining volume levels, and the ramp-up of the Fit to Serve program, which will generate $1.3 billion in savings, with significant benefits starting in Q2.

Productivity Initiatives and Cost Savings
Q: What actions are driving profit uplift aside from volume and headcount reductions?
A: UPS is enhancing productivity through record levels of cube utilization, improved packages per hour, and reducing turnover, which leads to higher productivity. They are closing sorts, moving volume to automated facilities, and running a safer, more efficient operation.

Fuel Surcharge Increase
Q: How will the increased fuel surcharge impact pricing and the market?
A: With rising fuel prices, UPS is adjusting its fuel surcharge, which is expected to stick despite not affecting all customers. The company believes the pricing environment remains rational, and excess capacity is being absorbed, supporting the surcharge increase.

International Margins and One-Time Items
Q: Why were international margins lower, and what is the outlook?
A: After adjusting for a one-time item, the international margin would be 17%. The first quarter is usually the lowest margin quarter, and UPS anticipates international business margins to be in the high teens as planned.

USPS Contract Accounting
Q: How will the USPS contract affect domestic margins?
A: While the USPS contract revenue comes through Supply Chain Solutions, the use of U.S. assets means allocated costs will positively benefit the domestic margin.

Volume Improvement Drivers
Q: What drove volume improvements as the quarter progressed?
A: The improving volume trends are largely due to the sales team's efforts in winning new business and increasing penetration with existing customers, meeting them where they want to be, despite a challenging market environment.

SMB and DAP Growth
Q: How is the progress on SMB and Digital Access Program growth?
A: SMBs now represent about 29% of UPS's business, expected to reach over 30% by year-end. Internationally, UPS has a 62% share in SMBs, and the DAP is resonating well, with projections exceeding $3 billion in revenue by the end of the year.

Pricing Environment and GRI Effectiveness
Q: How effective has the General Rate Increase been this year?
A: UPS expected a 50% keep rate from the GRI and realized about 250 basis points in the first quarter, aligning with expectations. The base rate is expected to continue over the year, contributing to revenue per piece growth.

Returns Business Profitability
Q: How does the returns business contribute to profitability?
A: Returns are treated as a B2B business where consumer returns are consolidated at UPS Stores and returned to shippers, offering attractive margins due to increased density.

Pension Contribution Strategy
Q: What is the current approach to pension contributions?
A: UPS's pensions are over 90% funded, allowing the company to pause and reassess its asset liability and funding strategy. They're exploring strategic options but have not made any decisions yet.

Second Quarter Guidance
Q: Can you provide more color on second quarter guidance?
A: UPS is maintaining its first-half guidance of a 20% to 30% decline in profit, expecting slight positive volume in Q2. Cost per piece will improve in Q3 after anniversarying the labor contract costs.

Productivity Savings Progress
Q: Where does the company stand on the $1 billion productivity savings?
A: The productivity initiative is progressing slightly ahead of plan, with over 80% of resource reductions to be complete by Q2. UPS is on track to achieve the $1 billion savings this year.

DAP Growth Slowing
Q: Is there a slowdown in Digital Access Program growth?
A: The first quarter saw DAP revenue grow 3%, which was expected after a 51% growth last year. The slower growth was due to amending terms and fees with partners, with growth expected to pick up in the second quarter and beyond.

USPS Contract Volume Onboarding
Q: Are there minimum volumes in the USPS contract, and how will volume be onboarded?
A: There are minimum volume commitments in the contract to protect both UPS and USPS. The goal is to onboard all volume before peak season, and teams are working closely to ensure a smooth transition.