United Parcel Service Inc (UPS) Q2 2026 Earnings Call Transcript

Good morning. My name is Matthew, and I'll be your facilitator today. I'd like to welcome everyone to the UPS Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there'll be a question and answer period. Any analyst that would like to ask a question, now is the time to press star, then one on your telephone keypad. It is now my pleasure to turn the floor over to your host, Mr. P.J. Guido, Investor Relations Officer. Sir, the floor is yours.

Amazon volume. We reconfigured and further automated our U.S. network for higher return opportunities, only $4.5 billion of related expense as we finish out 2026. We'll deliver operating leverage as volume grows and, importantly, carries materially better economics than before because of the structural changes we've made. Our second quarter financial results demonstrate the successful execution of key initiatives and the strength of our underlying business. Consolidated revenue was $22.8 billion, an increase of 7.6% versus last year. Consolidated operating profit was $2.1 billion, an increase of 12% versus last year. and consolidated operating margin was 9.2%, a year-over-year increase of 40 basis points from the first quarter. While fuel price volatility in the second quarter drove higher fuel revenue and corresponding fuel costs, our fuel surcharge mechanisms functioned as designed, covering the increase in fuel expense. All three segments contributed to our strong second quarter revenue performance and underscoring the strength of the quarter, U.S. domestic delivered meaningful operating profit growth of over 20% versus last year. As part of our transformation, we continue to invest in RFID and artificial intelligence. We view these technologies as the intersection of the physical and digital worlds, helping us gain efficiencies while also winning and retaining customers. RFID as the eyes and ears within our network from billions of package movements. While AI transforms that data into decisions, RFID is the most significant package visibility advancement in a decade. We're using it to move from a scanning-based network to a sensing network, eliminating hundreds of millions of manual scans every year. We've completed deployment of RFID sensing technology across all of our U.S. delivery facilities and package cars, and now we're moving internationally. We're also enabling our customers with RFID label printers, and every package shipped at our 5,500 UPS stores is RFID-enabled. These capabilities are generating rich, real-time data about the packages in our network. Now, pair that data with the AI-powered digital twin of our network, including all vehicles, aircraft, and package flow data. This strengthens our ability to dynamically adapt to changing conditions like weather delays, constantly tracking network performance so it can optimize planning, routing, and execution. The result is an integrated network that is even more efficient and reliable in visibility and an unmatched premium experience for our customers. The next phase of our strategy is straightforward. We're fully focused on capturing premium volume, like from SMB, healthcare, and B2B customers, with a clear emphasis on revenue quality and margin expansion. Looking at SMBs, demand in the U.S. in the second quarter was broad-based across nearly all industry sectors, delivering SMB average daily volume growth of 4.3%. SMBs continue to value the reliability of our integrated network and the capabilities we provide, including end-to-end visibility solutions, our digital access program or DAP, our UPS stores, and box-free, label-free returns. Speaking of DAP, it is not just for B2C e-commerce shippers. B2B e-commerce shippers also value the convenience and customer experience our DAP platform delivers. In fact, in the second quarter, we saw B2B DAP average daily volume increase 34% year-over-year. And in the second quarter, we generated $1.4 billion in global DAP revenue, marking the third quarter in a row of delivering DAP revenue of over $1 billion. In the second quarter, we generated over $3 billion in health care revenue, achieving that milestone for the second consecutive quarter. We're already the number one provider of complex health care logistics solutions in the world, and we're not stopping there. Demand for cold chain logistics is accelerating, and to further strengthen our global cold chain capabilities, we have added 27 temperature-controlled cross-stock facilities to our network. These facilities are designed specifically for fast, precise transfers of complex health care products between air and ground services while maintaining strict temperature control. We are the only carrier that provides end-to-end solutions for complex health care with our own assets, ensuring complete control, visibility, and best-in-class service. Looking at our industrial and automotive customers, they continue to operate in a complex environment shaped by shifting trade patterns, evolving regulations, and ongoing supply chain disruption. We're helping them navigate these complexities by combining the strength of our integrated network and RFID-enabled visibility with additional new capabilities. Here, we're expanding North American air freight services between the U.S. and Mexico. And we've launched a dedicated team of over 300 specialists with deep expertise in the supply chain needs of automotive and industrial manufacturing customers. Allow us to bring customers the right solutions, whether it's for a time-critical part, a cross-border shipment, or to assist when they are making a broader supply chain shift. The second quarter marks the fourth straight quarter of delivering results that exceeded our expectations. Going forward, our number one priority remains moving the right packages and the right mix of volume through our network. This is as true for the U.S. as it is for the rest of our businesses. I'm pleased with the growth we've seen in our forwarding business as they have been focused on driving premium volume. And outside the U.S., our team has done a magnificent job of managing through trade lane shifts. As trade policy changes and volume in trade moves, UPS has been there to support. We are seeing momentum on the China-to-U.S. lane, which returned to year-over-year growth beginning in May. As we enter the second half of the year, we've got momentum, even in the face of external factors that could influence our results, like war and fuel price volatility. Based on our year-to-date results, today we are raising our full-year 2026 Consolidated Revenue Outlook to approximately $91.2 billion. We are raising our Consolidated Operating Profit Expectation to approximately $8.65 billion and lifting our diluted earnings per share guidance to approximately $7.22. Brian will provide more details in a moment. With the foundational groundwork now in place, we are excited about the opportunities that lie ahead. So with that, thank you for listening. And now I'll turn the call over to Brian.

Thank you, Carol, and good morning, everyone. This morning I'll cover our second quarter results. Then I'll give an update on our Amazon glide down and network reconfiguration efforts. Finally, I'll wrap up with our financial outlook for the remainder of 2026. reflected excellent execution across our businesses, especially in U.S. domestic where we completed our Amazon glide down and related network reconfiguration efforts as planned. As Bill mentioned, our results reflected fuel price volatility during the second quarter stemming from the conflict in the Middle East, which drove an outsized increase in both revenue and expense relative to our expectations. Prices were positive to revenue. The corresponding increase in expense meant that the net impact to consolidated operating profit dollars was modest. In the second quarter, consolidated revenue was $22.8 billion, and operating profit was $2.1 billion. Consolidated operating margin was 9.2%, and diluted earnings per share were $1.76. The market, as we concluded our second quarter of last year, was around 2.3% year-over-year. Excluding Amazon, total AR-ADV increased 1.2% year-over-year, driven by S&B and healthcare customers. 3.5% compared to the second quarter of 2025, with most of the decline attributable to our planned Amazon glide down. When adjusting for Amazon and actions taken on other lower yielding volume, average daily volume grew year over year in the second quarter, and the improvements we're making through the execution of our strategy. That improvement was also reflected in our customer mix, increased 4.3% year over year, with growth from nearly all industries. Led by high tech Back to the second quarter, S&Bs made up 34.5% of total U.S. volume, an increase of 250 basis points compared to looking at B2B. While average daily volume was down 3.2% year-over-year, the rate of decline was 190 basis points better compared to the first quarter. With bright spots in the high-tech and automotive sector, second quarter, B2B represented 43.8% of our total U.S. volume. S-Domestic generated $14.9 billion, an increase of 6% year-over-year, with both S&B and enterprise customers contributing to the increase. Revenue per piece was strong and increased 9.3% compared to the second quarter of last year. Half of the growth in revenue per piece was driven by healthy base rates and customer mix improvements, with fuel contributing the remainder of the increase. In the second quarter, total expense in the U.S. domestic increased 4.9%, with more than half of the increase coming from fuel and purchase transportation. Strong base rate growth and increased productivity in our reconfigured network contributed to revenue per piece growing 130 basis points faster than the cost per piece growth rate, demonstrating the operating leverage we expected from our network reconfiguration. The U.S. domestic segment delivered $1.2 billion in operating profit, a 21% increase year-over-year, and more than double the operating profit delivered in the first quarter of this year. Operating margin was 8%, which was an increase of 100 basis points compared to the second quarter of last year, and a 400 basis point increase from the first quarter of this year. We delivered strong top-line growth with all regions generating year-over-year expansion, driven by strong revenue quality. Daily volume declined 5.8 percent, led by domestic declines in Europe. The average daily volume in the second quarter decreased 4.2 percent year-over-year. Importantly, we returned to volume growth on the China-U.S. trade lane as we lapped the elimination of the de minimis exemption for Chinese imports in May. Additionally, Asia-to-Asia export volume increased 13.6 percent by our recent investments in the region and geographic mix during the second quarter as trade lanes began to rebalance, particularly in Asia. As a result, international generated $5 billion in revenue, an increase of 12.5% year-over-year. Revenue growth was driven by an 18.9% year-over-year increase in revenue per piece, half coming from fuel. The profit in the international segment was $623 million, down $59 million year-over-year. International operating margin in the second quarter was 12.4%, which includes a 120 basis point year-over-year negative impact from fuel. Looking at supply chain solutions, for the second quarter in a row, supply chain solutions delivered strong operating profit growth year-over-year, driven by improvements across multiple business In the second quarter, revenue was $2.9 billion, an increase of $207 million versus last year. Forwarding increased revenue 8.1% year-over-year, driven by higher rates and international air Logistics revenue increased 4.3% year-over-year, driven by strong growth in health care logistics, partially offset by our male innovations business. And UPS Digital, which includes Rodean Happy Returns, delivered revenue growth of over 30% compared to the second quarter of 2025. Supply chain solutions generated operating profit of $291 million, an increase of $79 million year-over-year. Operating margin was 10.2%, up 220 basis points compared to last year, and the third quarter in a row of year-over-year operating margin expansion. Looking at cash and liquidity, year-to-date we've generated $3.1 billion in cash from operations and free cash flow of $1.6 billion, which includes the one-time payments made in the second quarter for the Driver Choice Program. We ended the second quarter with $4.7 billion in cash on the balance sheet and no outstanding commercial paper. For this year, UPS has paid $2.7 billion in dividends. Now, before moving to our outlook, let me show the progress we made in the first half of the year from our Amazon Glide Down and related network reconfiguration efforts. Hours moved down with volume in the first half of the year. In semi-variable costs, we finished down nearly 30,000 operational positions compared to the first half of last year. This includes reductions from our driver choice program with approximately 80% of participants departing the company in the second quarter. In our fixed-cost bucket, we closed 45 buildings in the first half of the year, with several additional closures planned in the back half of the year. Our engineering and operations teams executed the Amazon Glide down exceptionally well, and we're pleased to have successfully completed this part of our strategy, seeing significant value from these efforts as well as from our broader network reconfiguration and efficiency reimagined initiatives. As a result, we still expect to deliver approximately $3 billion in related benefits in 2026. to our 2026 financial outlook as we discussed we entered the year expecting a clear distinction between the first and second half given our strong first half results which exceeded our expectations we are increasing our full year 2026 outlook consolidated revenue of approximately 91.2 billion dollars and consolidated operating profit of approximately 8.65 billion dollars This implies full-year diluted earnings per share of approximately $7.22. Third quarter 2025 diluted earnings per share included a $0.30 benefit from sale-leaseback transactions. Now, let me add some color on the segments. Starting with U.S. domestic, their 2026 revenue of approximately $60 billion, up 1% year-over-year, and an operating margin of approximately 7.5%. 5%. We expect average daily volume to decline mid-single digits, reflecting a seasonal decline as well as the impact of this year's Amazon Glide Down, which completed in June. Revenue to be approximately flat year-over-year and a third-quarter operating margin of approximately 7%. We expect a U.S. domestic operating margin of approximately 8.8%, reflecting year-over-year margin expansion in both the third and fourth quarters. According to the international segment and starting with the full year, we anticipate revenue growth in the mid-single digits year, revenue per piece growth. Operating margin in the international segment is expected to be in the mid-teens, performance in the third quarter with revenue up mid-single digits, driven by strong revenue per piece. And we expect the operating margin to be between 13% and 14%. Supply chain solutions, we expect full year 2026 revenue growth in the high single digits, driven by growth in forwarding and healthcare logistics. We expect full-year operating margin to be between 10 and 11 percent. In the third quarter, we expect supply chain solutions revenue growth in the low double digits year-over-year and operating margin between 10 and 11 percent. Expectations for cash and the balance sheet. For the full year 2026, capital expenditures are still expected to be about $3 billion, and we plan to complete our pension contribution of $1.3 billion. Flow to be approximately $5.5 billion, which includes the payments for the driver choice program I mentioned earlier. Lastly, we are still planning to pay out around $5.4 billion in dividends in 2026. Full completion of the Amazon Glide Down and related network reconfiguration marks an important inflection point for UPS, setting us up to deliver consolidated revenue and operating profit growth and expand operating margin. As we move into the next chapter of growth, our focus is on growing premium, high-quality volume around the world, leveraging the full strength of our portfolio solutions. With our integrated global network enabling us, we are well-positioned to deliver sustainable, profitable growth and create long-term sharing of value. Frager, please open the lines for questions.

Thank you. We will now conduct a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. In the interest of time, we do ask that participants please ask one question. And once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Jordan Allager from Goldman Sachs. Your line is live.

Yeah, hi, good morning.

Thanks for the time. You know, with the Amazon drawdown done, you've given some good color for the third quarter and for the full year, 2026. Just sort of curious, can you maybe go into a little bit more on your confidence level around the structural change on domestic margin and what that could mean from a longer-term domestic margin perspective? Is there a bogey you'd like to see over the next couple years?

Thanks.

Thank you very much for the question. Let's just start with automation in our U.S. business. by the end of the second quarter that we should continue.

Carol, in addition to the automation you mentioned, I think it's important that we recognize that we've also brought down the capacity as we've been declining the Amazon volume. So if you go and you look at where we started at the beginning of 2024, Carol mentioned we've removed 2 million pieces a day of lower-yielding volume from the network. We will have eliminated 50 million hours through the course of last year and this year, nearly 78,000 operational positions that were associated with that volume, and we'll close nearly 150 buildings. That brings down the structural cost of the network that you're starting to see show up in the margin and gives us a lot of confidence that we can pull that through in the second half. So as you think about as we go forward, look, we continue to see really strong pricing in our U.S. business, and we think about base pricing in this kind of 250 to 350 basis point range, range, which is about where we are this quarter. And we also see cost-repease coming down as we right-size the network with the new structural So, Jordan, I think the way to think about it is about 50 to 100 basis points spread between RPP and CPP will help us drive margin accretion in our U.S. businesses to go forward. We do that by leaning into premium segments of the market to maintain that base pricing in an RPP benefit, and leveraging a now more efficient network in the U.S. to drive operating Thank you.

Thank you. Your next question is coming from Scott Group from Wolf Research. Your line is live.

Hey. Good morning. So, it seems like domestic margin improvement moderates a little bit in Q3, then re-accelerates again in Q4. maybe just give a little more color to sort of talk about that and then you know Carol just bigger picture in your opening comments you talked about gaining going after SMB and B2B share I think FedEx would probably say the same thing in terms of what they're trying to do so like how do you see the share dynamic the competitive dynamic evolving if if that's what both of us are looking to do in the first half and an earnings increase in the second half.

When you normalize for the sale leaseback transactions in the third quarter of last year, we're now in mid-teens EPS growth in both the third quarter and the fourth quarter. So it was a robust guy to begin with. The first half performance gives us a lot of confidence that we can hit that, and domestic is just going to perform under normal seasonality as we go into Q3 and Q4. differentiating, we now have RFID-enabled capabilities at the customer location, in other words,

the point of origin, covering over 2.2 million pieces per day. And let me tell you what that means for the customer. I'm going to give you a story. We recently converted a high-end jeweler from a competitor into our network because at the previous, they had to have security guards watch every scan accreditation. Where we have RFID at the point of origin, we have seen no churn. That's a really powerful way to grow, but it doesn't stop with RFID. Also, is our returns, leveraging our 5,500 UPS stores, our boxless, labelless return capability with happy returns, which, as we said in our prepared remarks, has seen great growth. Focus on B2B.

Your next question is coming from Tom Wadewitz from UBS. Your line is live.

Yeah, good morning. So I wanted to ask Brian if you could offer some thoughts on cost per piece trend in second half in 2027. You know, so you've had strong execution on resizing the network. I just want to get your sense on kind of how you think that plays out. And then how should we think about mix as a factor when we look at, let's say, 2027? You know, know you kind of talk about 250 to 300 basis points of price you know is that you know do you put a point or two of mix on top of that just given your focus on that kind of you know premium verticals and and packages S&B that are probably generating higher you know revenue per piece thank you yeah thanks Tom for the question so first let me let me hit I think what's really important is to think about the RPP CPP spread so let me talk a little bit about that as we transition from the first half to the second half.

Because we will be – as we go from first half to second half, we are wrapping some pretty material changes that we made in pricing last year. So we're actually going to see both numbers come down a little bit, right? So we were 9.3 percent in second quarter for RPP in the U.S. About half of that was fuel and about half of it was base pricing and mix. That will come down, you know, closer to 4%, 4% to 4.5% as we wrap some of those impacts from last year. On a two-year stack, it still shows really strong pricing. Off to the network, we expect CPP to come down as well, so we'll maintain that kind of 50 to 100 basis points. Forward, like we said, look, that unit cost differential to drive operating leverage is our focus as we go into 2027. We will still continue to have an impact of Amazon as we wrap into the first half of 2027 and comp that volume out. But we do expect some product mix benefit, as you say. So, yeah, the base pricing plus 50 to 100 basis points of product mix is a reasonable expectation as we go forward. And we'll really be focusing on maintaining that unit cost spread to drive operating leverage.

Thank you. Your next question is coming from Chris Weatherby from Wells Fargo. Your line is live. Yeah, hey, thanks. Good morning, guys.

In the last quarter, you gave the Amazon percent of revenue. I know it wasn't a year-end number, but I was wondering if you could maybe offer that considering we're kind of at the end of the glide down and then maybe zooming out a little bit sort of with what you have left of that part of your portfolio. How do we think about the growth profile of that versus maybe the rest of the opportunity for top-line growth for you as you think out beyond 26, maybe 27, 28?

We've made up nine from a year ago and certainly down from the peak, which was over 13% during the COVID years. As we think about going forward, it's all about optimizing the volume that comes into our network, and we are working together as partners to make that happen.

Thank you. Your next question is coming from Ken Hoekster from Bank of America. Your line is live.

Hey, great. Good morning. And, Carol, just to maybe follow up on that a little bit, just what do you think, or Brian, I guess, What are the thoughts on ground growth underlying now, now that you're end of the program? Do you reassess with Amazon on your future in terms of where you stand now in that 9%? And if international is normalizing now with Asia volume, should we see the margins return to upper teens, mid-teens? Where do you think international pans out as well?

The trends that we're seeing.

When you look at it, so we do start to see momentum in some really important trade lanes in international. and that momentum is going to carry through as we get into the back half. Look, we're seeing volume recover as trade lanes settle. Also, in the back half of this year, we have the wrap of the elimination of global de minimis in September that drives a pretty big year-over-year comp benefit. I would also say, look, our international businesses can perform a little bit better than seasonality because of the volume momentum we have going into the fourth quarter, especially with surge fees and peak fees that we typically see in the market. So we're positive there. And I would say just to add to Carol's point on the U.S., Ken, we're going to see volume growth next to Amazon in the back half of this year across all segments, right? So we've talked about S&B, but we will see volume growth in the back half of this year.

Thank you. Your next question is coming from David Vernon from Bernstein. Your line is live.

Hey, good morning, guys. So, Carol, I wanted to ask you about some of the competition issues around Amazon. We continue to hear both from investors and some of the conversations in industry about Amazon being a little bit more aggressive from an enterprise shipping perspective and wanting to kind of go after directly some of your customers. I'm just wondering if you guys are seeing that in the day-to-day. And then, you know, more broadly, as you think about, you know, dealing with that potential inevitability or occurrence if it's going to happen, how do you think about responding to that?

Well, David, we look at the offerings that all competitors are presenting to customers and then focusing on how we are differentiating the offer that we provide. And those points of differentiation, which I mentioned earlier, include our cold chain logistics capabilities, our reverse logistics capabilities, our RFID labeling capabilities, and that visibility end-to-end. Of course, you know, time definite delivery and special operating plans. So we create relationships and partnerships with our customers to ensure that we are meeting them where they want us to be. That's an important point of differentiation. It's also about relationship building. You know, we have over 300 high-impact executives who have relationships with our customers, relationships at the CEO level and at the CFO level. It's no longer just at the chief procurement officer level or the chief supply chain officer level. And these relationships create an element of trust. And trust matters as competition comes knocking on the door, because it does. So when competition comes knocking on the door, we're there to meet that competition with our enabling capabilities. I am not aware of any volume that we've lost to that competitor that you mentioned. But we're going to stay, you know, focused on this, leaning into what we're best at. And, oh, by the way, did I mention service? I should have. We continue to lead the pack in terms of on-time delivery. That's in class.

Thank you. Your next question is coming from Jonathan Chappell from Evercore ISI. Your line is live.

Thank you. Good morning. Brian, you've obviously done a lot of heavy lifting, getting the cost aligned with the Amazon glide down. If you look to the demand environment today relative to where it was 18 months ago, obviously a ton has changed with tariffs and de minimis and fuel and war, et cetera. How do you feel about the capacity on the go forward? Do you think that you're in a situation where you're right-sized on the 2H26, 27 kind of demand outlook, or is there more trimming or even growth that needs to be done on the capacity side just given the ebbs and flows of demand over the last 18 months?

And first, I'd be remiss if I didn't say there are thousands of UPSers that delivered those. It wasn't just myself or the executive team. We've got a lot of people that have worked really hard to help get the network to where it is. And I do think that, you know, with your question, the capacity is in a really good place, right? I mentioned some of the stats of the Amazon drawdown. This is what we've been targeting. We've been targeting trying to get to an optimal capacity for the delivery volume that we anticipate having in the U.S. So that's kind of step one, check we've gotten there. Now, the second piece, as Carol mentioned, the automation that we put in now gives us more flexibility to scale that capacity, right? The automated hubs give us the ability to add throughput much faster than what we used to have to do with conventional hubs. And our network is getting much smarter about how we can scale down, not just from month to month or peak to non-peak, but even day to day and week to week. So we feel really good about that, and we think that it aligns really well with the demand environment and what we think we'll see at peak seasons now that we've got a much more manageable peak with a more stable set of customers.

I feel very good about the capacity just to put the automation percentage into perspective because what does 68 mean? It's the equivalent year-on-year of 337 million more packages going through automation than we had a year ago. That creates a tremendous amount of capacity to pull more volume through. And we're ready for it. We're ready for it. And as you heard, if you ignore Amazon and the volume that we intentionally made available to the market, we actually grew our volume in the second quarter.

Thank you, Carol and Brian. Thank you. Your next question is coming from Ari Rosa from Citigroup. Your line is live.

Hi, good morning, Carol and Brian. Maybe the automation piece is actually a good thing to continue on. I wanted to ask about something a little bit further out. It seems to me next year people are going to start talking about the Teamsters contract renegotiation. You've obviously done a lot of work to drive efficiency. Thinking about the last Teamsters contract, Obviously, that was the start of a number of problems that obviously resulted in having to drive efficiency and other things. How do investors get comfortable that we're not going to have similar challenges, and how are you thinking about approaching that negotiation? I know it's still a ways out, but just talk to us about how you're thinking about that and kind of the relationship with the team at this point, such that investors can get comfortable with that risk.

Thanks. relationship contract negotiations that allows us the ability to continue to drive our business, continuing to drive our business.

Thank you. Your next question is coming from Brian Ozenbeck from J.P. Morgan. Your line is live.

Hey, good morning. Thanks for taking the question. Maybe two quick follow-ups for Brian here. Just thinking about the 2Q to 3Q bridge for U.S. domestic, I was thinking maybe it might be a little bit better than seasonal. We got the driver choice. most of that was done in 2q the USPS smart post transition the network reconfiguration MD 11 leases so just want to see why why we wouldn't see more of a pickup into 3q and all those things are fully baked in if you can provide a little bit of color in terms of sound it sounds like the international margins may be impacted a bit by fuel which to me sounded like the only margin impact from fuel this quarter across the segment so just want to clarify that as well thanks yeah yeah percent margin impacted by fuel the portion of the

total cost base and so while we got a margin impact associated with the Middle East war right there's some cost to read redirect the network some some leased aircraft cost because of we can't fly into the region things like that so so that's that kind of explains the the international piece second quarter to third at the beginning of the year you know adjusted for the sale lease back it's going to be a mid-teens EPS growth. I would say the first half of the year performance gives us a lot of confidence in the momentum that we're seeing that's going to help us deliver the second half of the year and we want to make sure that we hit the numbers that we laid out. So I think it's pretty close to normal seasonality and we feel really confident in our ability to deliver.

I think the spread narrows a bit between RPP and CPP because there were some pricing actions that we took a year ago in the third quarter that aren't repeating. That's right. So there's a little bit of a year-over-year cop, but we're very excited that we're going to be expanding margin in both Q3 and Q4 in our domestic business.

Your next question is coming from Brandon Oglinski from Barclays. Your line is live.

Hi, good morning. Thanks for taking the question. Maybe we can talk a little bit about international volume trends because it does look like your domestic business has been down quite a bit. Was there any sort of, like, focused reorienting of the business there, or did this just follow through on tariffs? And I guess you guys talked about, you know, volume trends moving positive in Asia. So how does the current tariff situation play into that outlook?

So if you look at our international volume, first in the China-U.S. trade lane, which is because we've made investments there, we have seen, though, tariffs impact volume, certainly impacted volume Canada to the United States, and that's actually our largest trading partner. So we were just working through the tariff noise, if you will. And then because of the disruption in the Middle East, We've seen some volume declines in Europe. Some of that's tariff, but mostly it's because of the disruption in the Middle East. Domestically, we have been working on the same pivot as we have in the United States to lean into revenue quality, and we're really pleased with that because it's going to position us for good things to come.

Your next question is coming from Bascom Majors from Stevens.

Your line is live. yeah brian don't want to beat a dead horse on seasonality but even if we add back the 350 million in one-time costs that you talked about in the first quarter it still looks like the consolidated operating profit in the second half versus first half is a bit more than you've done in recent years could you just broad strokes high level kind of bridge us to you know what we're missing on the cost side or the revenue side that gets you comfortable with that, you know, maybe slightly more than typical momentum there? Thank you.

Yeah. So, Baskin, if you look across the segments, the normal seasonality, where you're seeing the improvement is in the international business. And it's really about two things. This momentum that we talked about, right, that we see volume performing well in Asia, right, and we see that carrying through. Having the elimination of the global de minimis exemption in September that shows a big year-over-year improvement as we get into the fourth quarter, as well as, you know, our normal kind of seasonal uplift. So domestic and SES will be kind of normal. Internationally, you're going to see steady improvement as we go through the back half. It makes it look a little bit better in total.

Thank you. Thank you. Your next question is coming from Bruce Chan from Staple. Your line is live. Hi. Good morning, everyone.

Just, you know, going back to some of the competitive dynamics here you know we understand that FedEx is spinning up a similar program to DAP I just wanted to get your comments on you know what kind of threat that poses and how you think that influences your DAP growth outlook keep adding new depth been in place now over six years we've had two quarters in a row of over a billion dollars of growth on the platform we've got strong relationships there we feel very good about our offering our we've got a simple API that It allows us to stand up a platform in less than a day. So we always look at the competition. I don't mean to poo-poo any competition, but I feel very good about where we are and the strong relationships that we have with the various e-commerce platforms that are using our program.

Thank you. Your next question is coming from Ravi Shanker from Morgan Stanley. Your line is live.

Great. Just a couple here. Brian, can you confirm that whether you had any real estate gains in 2Q and maybe the run rate for that for the rest of the year. And, Carol, maybe follow up to your response on Amazon. Just to confirm the messaging there, are you saying that they're going after volumes that you guys don't necessarily want, or are you saying there's enough room for everybody to grow in this industry?

Good question. On the real couple years, also the offset of asset write-offs, accelerated depreciation, dilapidations. And so we had kind of planned all those in our guide, and they kind of washed. The only material transaction, and we were very clear about calling out, were the sale-leaseback transactions that we did in the third quarter.

Question. I suspect you should ask them what volume they're going after. But if we do a side-by-side comparison, where they have strengths would be on lightweight, short-zone, urban. Where we have strengths is every other place. We're going to lean into the parts of the market that we want to grow with enabling capabilities that we will do better than anybody.

Thank you. Your next question is coming from Jeff Kaufman from Citizens Bank. Your line is live.

Thank you very much, and congratulations on getting past some of these big drains on the system. I want to take a longer-term view, Carol, with some of the capacity changes you've made. I know we're spending about $3 billion right now, and that's been the case for the last year or two. But if I go back in time, spend in the $4.5 to $5 billion range has kind of been more normal for the business. If we look out three to five years, where do you think capital spend should settle? And with the new structure in your organization, is that going to be permanently a billion dollars less than we're used to? Or are we going to have to get up to that $4.5 to $5 billion range at some point in time? And that is a little structurally lower than it has been in the past. So, you know, whether it's phase of creed or not, yeah.

It is. But remember, we built out a network. We built out a global network. But when we have opportunities, trust us, we'll be investing in those. For example, we just announced that we opened up 27 cold chain cross-stock facilities. That cements our leadership position around the world for complex healthcare logistics. We just announced that we invested $50 million in North American air freight to support automotive and industrial customers and their growth and some of the challenges that they're facing with given today's supply chain. We can help them. So where we see opportunities to invest for growth, we will.

Okay, thank you.

Thank you.

Our next question is coming from Stephanie Moore from Jeffries. Your line is live.

Hi, good morning. I wanted to touch on peak season, maybe how peak season is shaping up so far this year. We're also seeing pretty active import activity, so we'd love to hear your thoughts on how it's trending versus maybe prior years.

It studies a little bit early. We're just starting to get peak season forecasts from our customers, but as we built our financial plan that supports the guidance that we just gave, we expect the volume sequentially in the United States to lift about 24%, much like it did last year.

And I would just add, Carol, on that standpoint is that the pricing remains rational, and we think that we'll be up.

Holiday demand surcharge.

Our final question comes from the line of Jason Cheadle from TD Cowan. Your line is live.

Hi, great. This is Elliot Alperon for Jason. Just within healthcare logistics, you discussed the investment in crosstalk facilities to further build out that business.

Can you talk about the new capabilities, some of these temp-controlled cross-docs offer to customers that maybe you couldn't do before, and maybe how these investments are impacting your healthcare growth pipeline?

Well, I'd be happy to give you that the vaccine is ready for pickup. We will pick up that vaccine in a refrigerated truck and carry it to our coal chain cross, which that vaccine will be prepared for shipment. We then put that vaccine on a refrigerated truck and truck it over to our main European air hub in Cologne, Germany. We put the vaccine on our brown tail, and we fly it to our main air hub in Louisville, Kentucky, which we call Roefort. That vaccine is then put on a refrigerated truck and trucked over to our coal chain warehousing in Sheffordsville, Kentucky. We do that in less than 24. That vaccine travels against because of our RFID labeling. Oh, by the way, which also measures temperature control, so we make sure there's no excursion. This allows us then the capability that we can take to our healthcare logistics companies and meet them where they need us to be. Now with that, Kate, would you like to add anything?

Yeah, absolutely. I mean, it is a differentiated solution.

All of those pallets of vaccines that Carol talked about are riding on our assets. That is a big differentiation. We're not doing handoffs with other carriers that lead to excursions or failure or impact of life.

Right now, the cold chain new investment, growing double digits. And revenue per kilo is as well. So really great strength. Our customers are recognizing it.

Thank you, Kate.

I will now turn the floor back over to your host, Mr. PJ Guido.

Thank you, Matthew, for joining, and have a good day.