United Parcel Service, Inc.
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Item 1.Business
Overview
UPS, founded in 1907, is a global package delivery and logistics provider. We offer a broad range of industry-leading products and services through our extensive global presence, serving over 200 countries and territories. Our services include transportation and delivery through our integrated air and ground network, distribution, contract logistics, ocean freight, airfreight, customs brokerage and insurance. In 2025, we delivered an average of 20.8 million packages per day, totaling 5.2 billion packages during the year. Total revenue in 2025 was $88.7 billion.
Strategy
We are continuing to execute our Customer First, People Led, Innovation Driven strategy, which focuses on growing in the parts of our market that value our end-to-end solutions, including healthcare, business-to-business ("B2B"), small- and medium-sized businesses ("SMBs"), and international.
Customer First is about reducing friction in the customer experience by anticipating and solving for customers' needs. We are focused on providing differentiated value through our capabilities and service. We strive to enable our customers to better
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compete and succeed by taking complexity out of their business and delivering what they tell us matters to them the most: speed, ease and service reliability.
People Led focuses on our employee experience and how likely an employee is to recommend UPS employment to a friend or family member. We know successful outcomes are built from a strong culture and sense of partnership. We believe that when we take care of our people, they will take care of our customers.
Innovation Driven is our focus on leveraging technology to optimize the volume that flows through our network. We continually seek to improve the productivity and efficiency of our global integrated network by using technology to move from a scanning to a sensing network, including using RFID technology in our Smart Package Smart Facilities initiative.
In 2025, we took several steps in furtherance of this strategy, including continuing to deliberately shift our business to increase our focus on higher yielding volume, which allowed us to increase SMB penetration to over 30% of total U.S. volume from 2024. We also completed the acquisitions of Frigo-Trans and Biotech & Pharma Logistics ("Frigo-Trans") and Andlauer Healthcare Group ("AHG"), further expanding our healthcare cold chain capabilities. In 2025, our global healthcare portfolio generated more than $11 billion in revenue, furthering our progress towards our goal to become the number one complex healthcare logistics provider in the world. Additionally, we extended our RFID labeling solution to 5,500 UPS store locations and completed the installation of RFID readers across U.S. package cars. This label technology allows customers to generate shipping labels with embedded RFID, streamlining processes and improving tracking capabilities. Furthermore, in December 2025, we entered into an agreement with the United States Postal Service ("USPS") to support final-mile delivery for a portion of our Ground Saver and Mail Innovations volumes starting in 2026. This agreement is expected to allow us to more cost efficiently serve our customers across these offerings while maintaining our industry-leading service levels.
Competitive Strengths
Our competitive strengths include:
Global Smart Logistics Network. We believe that our integrated global air and ground network is the broadest in the industry. We provide all types of package services (air, ground, domestic, international, commercial and residential) through a single pickup and delivery network that is configured to meet customers' needs. Our sophisticated systems, including our RFID-enabled Smart Package Smart Facility technology, enable us to optimize network efficiency asset utilization, and to enhance end-to-end visibility.
Global Presence. We serve more than 200 countries and territories. We have a significant presence in all major economies, allowing us to effectively and efficiently operate globally.
Cutting-Edge Technologies. We develop technologies that help customers enhance their shipping and logistics business processes, lowering costs, improving service and increasing efficiency. We leverage advanced and emerging technologies, including artificial intelligence ("AI"), and offer a variety of digital tools and capabilities that enable customers to integrate UPS functionality into their distribution channels. Our digital and automated tools support shipment creation, tracking and data management, and enable data‑analysis automation, automated agents, personalization and customized pricing.
Service. We consistently deliver industry‑leading service, through engineering and operational excellence, particularly during peak times when our customers need reliability the most.
Broad Service Portfolio. Our service portfolio offers customers of all sizes services to meet their logistics needs. Increasingly, our customers benefit from UPS services beyond package delivery. We continue to invest in specialized services like cold chain and thermal monitoring technologies, which we believe allow us to better serve our healthcare customers.
Customer Relationships. We seek to build and maintain long-term customer relationships. As customer needs evolve, UPS continues to develop value-added services beyond package delivery. Connecting our small package, supply chain, digital and on-demand services across our customer base is important to customer retention and growth.
Brand Equity. Our leading and trusted brand stands for service quality, reliability and innovation. Our vehicles and the professional courtesy of our drivers are major contributors to our brand equity.
Distinctive Culture. Our strong, purpose-driven culture fosters trust, partnership and empowerment among our dedicated employees. We encourage our people to bring their unique perspectives, background, talents and skills to work every day.
Financial Strength. Our financial strength enables us to pursue strategic growth opportunities. This includes investing in digital technology, acquisitions, equipment, facilities and employee development to generate value for shareholders. Our strong credit rating provides additional flexibility in running the business.
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Products and Services; Reporting Segments
We have two reporting segments: U.S. Domestic Package and International Package. Our remaining businesses are reported as Supply Chain Solutions ("SCS"). U.S. Domestic Package and International Package are together referred to as our global small package operations.
Global Small Package
Our global small package operations provide time-definite delivery services for express letters, documents, packages and palletized freight via air and ground services. These services are supported by numerous shipping, visibility and billing technologies including our Digital Access Program ("DAP"), which embeds our shipping solutions directly into leading e-commerce platforms, enabling us to reach SMBs and e-commerce markets more broadly.
All packages flow through our single, global network, unless dictated by specific service commitments. This enables efficiently scheduled pick ups for any service level. Our network provides unique operational and capital efficiencies and has a smaller environmental impact than single service network designs.
We offer same-day pickup of air and ground packages seven days a week through a broad variety of network access points including, UPS Access Points, The UPS Stores and UPS drop boxes. UPS drivers can also directly accept packages.
We offer returns services in approximately 150 countries, addressing customers' needs for efficient and reliable returns. These services have been driven by e-commerce growth and are designed to promote efficiency and a friction-free consumer experience.
Our global air operations hub is located in Louisville, Kentucky, and is supported by air hubs across the United States ("U.S.") and internationally. We operate international air hubs in Germany, China, Hong Kong, Canada and Florida (for Latin America and the Caribbean). This design enables cost-effective package processing using fewer, larger and more fuel-efficient aircraft.
U.S. Domestic Package
We are a leader in time-definite, guaranteed small package delivery services in the U.S. We offer a full spectrum of air and ground package transportation services. Our ground fleet serves substantially all business and residential zip codes in the contiguous U.S.
•Our air portfolio offers time-definite, same-day, next-day, two-day and three-day delivery alternatives as well as air cargo services.
•Our ground network enables customers to ship using our day-definite ground service. We deliver approximately 15 million ground packages per day, most within one to three business days.
•Ground Saver (formerly UPS SurePost) provides residential ground service for customers with non-urgent, lightweight residential shipments. In December 2025, we entered into an agreement with the USPS to support final-mile delivery for a portion of Ground Saver volume beginning in 2026.
International Package
International Package consists of our small package operations in Europe, Middle East and Africa (together "EMEA"), Canada and Latin America (together "Americas") and Asia. We offer a wide selection of guaranteed day and time-definite international transportation services supported by our brokerage capabilities that facilitate cross‑border clearance for international shipments.
For international package shipments that do not require express services, UPS Worldwide Expedited offers a reliable, deferred, day-definite service option. For cross-border ground package delivery, we offer UPS Standard delivery services within Europe, between the U.S. and Canada, and between the U.S. and Mexico. Worldwide Economy offers a contract-only, e-commerce solution for non-urgent, cross-border shipments. UPS Worldwide Express Freight is a premium international service for urgent, palletized shipments over 150 pounds.
SCS
SCS consists of our Forwarding, Logistics, digital and other businesses. As a global service provider, we strategically seek to provide integration across increasingly complex, specialized and fragmented supply chains.
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Forwarding
We are one of the largest U.S. domestic airfreight carriers and airfreight forwarders globally. We offer a portfolio of guaranteed and non-guaranteed global airfreight services. Additionally, as one of the world’s leading non-vessel operating common carriers, we provide ocean freight full container load, less-than-container load and multimodal transportation services between most major ports around the world. We also provide customs brokerage as well as various related services.
In 2024, we completed the divestiture of our truckload brokerage business ("Coyote"). For additional information on this divestiture, see note 8 to the audited, consolidated financial statements.
Logistics
Our global logistics and distribution business provides value-added fulfillment and transportation management services. We operate both multi-client and dedicated facilities across our network, many of which are strategically located near UPS air and ground transportation hubs to support rapid delivery to business and consumer markets. We continue to invest in facility automation to enhance operational efficiency.
We offer world-class technology, deep expertise and highly sophisticated healthcare logistics services. With a strategic focus on serving the unique, priority-handling needs of healthcare and life sciences customers, we continue to increase our complex cold-chain logistics capabilities both in the U.S. and internationally. In furtherance of this strategy, we have continued to grow organically, making investments in facilities to expand our network, and inorganically, including through the acquisitions of Frigo-Trans in January 2025 and AHG in November 2025.
Digital and Other SCS Businesses
Our digital and other SCS businesses leverage technology to enable a range of on-demand services. Roadie, our crowdsourced delivery platform, offers the convenience of same-day delivery and efficient service for packages that are not compatible with our small package network. Happy Returns offers innovative end-to-end return services that leverage The UPS Store network. We also offer integrated supply chain and high-value shipment insurance solutions through UPS Capital, as well as a range of services through our other SCS businesses. We believe these services better enable us to meet customers' needs and deepen customer relationships.
Human Capital
Our success comes from our people working together with a shared purpose. As we seek to capture new opportunities and pursue growth, we are focused on maintaining the strengths we have cultivated over our nearly 119-year history while incorporating the new perspectives we need to take the business into the future.
To assist with employee recruitment and retention, we continue to review the competitiveness of our employee value proposition, including benefits and pay, training, talent development and advancement opportunities. For additional information on the importance of our human capital efforts, see "Risk Factors - Business and Operating Risks - Failure to attract or retain qualified employees could materially adversely affect us" and "- Strikes, work stoppages or slowdowns by our employees could materially adversely affect us".
We have approximately 460,000 employees (excluding temporary seasonal employees), of which 370,000 are in the U.S. and 90,000 are located internationally. Our global workforce includes approximately 75,000 management employees (nearly 35% of whom are part-time) and approximately 385,000 hourly employees (nearly 50% of whom are part-time). Nearly 80% of our U.S. employees are represented by unions, primarily those employees handling or transporting packages. Many of these employees are employed under a national master agreement and various supplemental agreements with local unions affiliated with the International Brotherhood of Teamsters ("Teamsters"). Our national master agreement with the Teamsters expires on July 31, 2028. In addition, approximately 3,400 of our pilots are represented by the Independent Pilots Association ("IPA"). Our agreement with the IPA became amendable September 1, 2025. We have approximately 2,000 airline mechanics who are covered by a collective bargaining agreement with Teamsters Local 2727 which becomes amendable November 1, 2026. In addition, approximately 3,000 of our auto and maintenance mechanics who are not represented by the IBT are employed under a collective bargaining agreement with the International Association of Machinists and Aerospace Workers ("IAM"), which expires on July 31, 2029.
Oversight and management
Our Board of Directors (the "Board"), directly and through the Compensation and Human Capital Committee, is responsible for oversight of human capital matters. Effective oversight is accomplished through a variety of methods and processes including regular updates and discussions around risks and benefits of strategic and technology initiatives impacting
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
During the second quarter of 2026, we took several steps in furtherance of 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. This included completing the planned reduction of volume from our largest customer, as previously announced, in which we reduced their volume by more than 50% from 2024 levels. We also continued our focus on revenue quality and made progress on previously announced initiatives related to workforce optimization, network capacity actions and the outsourcing of last-mile delivery of a portion of our Ground Saver product to the United States Postal Service ("USPS").
We also advanced our Network of the Future initiative, which is intended to enhance the efficiency of our U.S. Domestic Package network through automation and operational sort consolidation. Our related Network Reconfiguration initiative expanded our Network of the Future initiative, and has led, and will continue to lead, to further consolidations in facilities, vehicles, aircraft 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. As a part of these initiatives, in the first half of 2026, we closed 45 leased and owned buildings, 44 of which have been permanently closed, and recorded approximately $1.1 billion in separation costs related to our previously announced voluntary separation program, the Driver Choice Program. See Supplemental Information - Items Affecting Comparability for additional discussion of this initiative.
In the first half of 2026, we also advanced a number of initiatives that drove growth in healthcare and international markets, including the integration of Andlauer Healthcare Group ("AHG"), which expanded our healthcare logistics network and capabilities, and investments in temperature-controlled cross-dock facilities. Internationally, we expanded our hub in Incheon, South Korea, opened a logistics center in Taiwan and implemented initiatives to improve ground transit times in Europe.
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 ("SCS").
Our financial results for the three and six months ended June 30, 2026 reflected the impact of a complex macroeconomic environment, including evolving trade policies, higher fuel and network costs arising from the Middle East conflict, as well as the impact of our strategic actions described above.
In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA"). UPS has filed and received U.S. Customs and Border Protection ("CBP") approval for approximately $500 million of IEEPA tariffs paid for entries eligible for refund. For additional information on tariffs, see note 10 to the unaudited, consolidated financial statements included in this report.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Highlights of our consolidated results compared to our results for the three and six months ended June 30, 2026 and 2025, which are discussed in more detail below, include:
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||
| Revenue (in millions) | $ | 22,834 | $ | 21,221 | $ | 1,613 | 7.6 | % | $ | 44,036 | $ | 42,767 | $ | 1,269 | 3.0 | % | ||||||||||||||||||||||||||||
| Operating Expenses (in millions) | 21,904 | 19,399 | 2,505 | 12.9 | % | 41,839 | 39,279 | 2,560 | 6.5 | % | ||||||||||||||||||||||||||||||||||
| Operating Profit (in millions) | $ | 930 | $ | 1,822 | $ | (892) | (49.0) | % | $ | 2,197 | $ | 3,488 | $ | (1,291) | (37.0) | % | ||||||||||||||||||||||||||||
| Operating Margin | 4.1 | % | 8.6 | % | 5.0 | % | 8.2 | % | ||||||||||||||||||||||||||||||||||||
| Net Income (in millions) | $ | 604 | $ | 1,283 | $ | (679) | (52.9) | % | $ | 1,468 | $ | 2,470 | $ | (1,002) | (40.6) | % | ||||||||||||||||||||||||||||
| Basic Earnings Per Share | $ | 0.71 | $ | 1.51 | $ | (0.80) | (53.0) | % | $ | 1.73 | $ | 2.91 | $ | (1.18) | (40.5) | % | ||||||||||||||||||||||||||||
| Diluted Earnings Per Share | $ | 0.71 | $ | 1.51 | $ | (0.80) | (53.0) | % | $ | 1.73 | $ | 2.91 | $ | (1.18) | (40.5) | % | ||||||||||||||||||||||||||||
| Operating Days | 64 | 64 | 126 | 126 | ||||||||||||||||||||||||||||||||||||||||
| Average Daily Package Volume (in thousands) | 19,006 | 19,741 | (3.7) | % | 19,093 | 20,257 | (5.7) | % | ||||||||||||||||||||||||||||||||||||
| Average Revenue Per Piece | $ | 15.96 | $ | 14.34 | $ | 1.62 | 11.3 | % | $ | 15.65 | $ | 14.28 | $ | 1.37 | 9.6 | % | ||||||||||||||||||||||||||||
•All of our segments contributed to revenue growth during the quarter and year-to-date periods of 2026.
•Revenue increased in both the quarter and year-to-date periods due to higher fuel surcharge revenue, benefits from our focus on revenue quality and higher yielding volume, as well as the impact of the AHG acquisition in the fourth quarter of 2025, partially offset by lower revenue associated with average daily volume declines and decreases in our Mail Innovations volume.
•Average daily package volume in our global small package operations decreased in both the quarter and year-to-date periods primarily due to planned reduction in volume from our largest customer, revenue quality actions, including those affecting certain e-commerce customers, and the impact of trade policy changes on certain international trade lanes. These declines were partially offset by continued growth from SMBs who leveraged our Digital Access Program ("DAP").
•Operating expenses increased during the quarter and year-to-date periods, primarily due to employee separation costs related to the Driver Choice Program and excess operational staffing in the first quarter of 2026 associated with outsourcing our Ground Saver product. Expenses also increased due to higher purchased transportation costs and higher costs for third-party aircraft, including lease expense incurred to address capacity constraints following the permanent grounding and retirement of our MD-11 fleet in the fourth quarter of 2025. Additionally, higher fuel costs and charter utilization expenses associated with network disruptions resulting from the Middle East conflict contributed to the increase. These increases were partially offset by benefits achieved as we executed our Network Reconfiguration and Efficiency Reimagined initiatives, as well as gains on sales of properties and aircraft parts.
•As a result of the factors described above, consolidated operating profit and operating margin decreased $892 million for the quarter ($1.3 billion year to date), with operating margin decreasing 450 basis points to 4.1% (down 320 basis points to 5.0% year to date).
•We reported second quarter 2026 net income of $604 million and diluted earnings per share of $0.71 ($1.5 billion and $1.73 per diluted share, year to date). Non-GAAP adjusted diluted earnings per share for the second quarter of 2026 were $1.76 ($2.82 per diluted share, year to date) after adjusting for the after-tax impacts of:
◦Transformation strategy costs of $891 million, or $1.05 per diluted share, in the second quarter ($933 million, or $1.09 per diluted share, year to date), primarily from employee separation costs related to the Driver Choice Program. For additional information, see note 16 of the unaudited, consolidated financial statements.
•We also returned $2.7 billion of cash to shareowners through dividends during the first half of 2026.
For additional operational results for the quarter and year-to-date periods specific to our segments, refer to Results of Operations - Segment Review below.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Supplemental Information - Items Affecting Comparability
We supplement the reporting of our financial information determined under generally accepted accounting principles ("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.
Non-GAAP adjusted amounts reflect the following (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| Non-GAAP Adjustments | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||
| Transformation Strategy Costs: | ||||||||||||||||||||||
| Transformation 2.0 | $ | — | $ | (3) | $ | — | $ | 13 | ||||||||||||||
| Fit to Serve | — | 9 | — | 28 | ||||||||||||||||||
Network Reconfiguration and Efficiency Reimagined | 1,172 | 68 | 1,227 | 91 | ||||||||||||||||||
| Total Transformation Strategy Costs | 1,172 | 74 | 1,227 | 132 | ||||||||||||||||||
Net Loss (Gain) on Divestiture | — | (20) | — | 19 | ||||||||||||||||||
Total Non-GAAP Adjustments to Operating Expenses | $ | 1,172 | $ | 54 | $ | 1,227 | $ | 151 | ||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| Non-GAAP Adjustments | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||
| Other Income and (Expense): | ||||||||||||||||||||||
| Goodwill and Asset Impairment Charges | $ | — | $ | — | $ | — | $ | 19 | ||||||||||||||
Total Non-GAAP Adjustments to Other Income | $ | — | $ | — | $ | — | $ | 19 | ||||||||||||||
Total Non-GAAP Adjustments to Income Before Income Taxes | $ | 1,172 | $ | 54 | $ | 1,227 | $ | 170 | ||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
| Non-GAAP Adjustments | 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||
| Income Tax (Benefit) Expense: | ||||||||||||||||||||||
| Transformation Strategy Costs: | ||||||||||||||||||||||
| Transformation 2.0 | $ | — | $ | (1) | $ | — | $ | 3 | ||||||||||||||
| Fit to Serve | — | 2 | — | 6 | ||||||||||||||||||
Network Reconfiguration and Efficiency Reimagined | 281 | 16 | 294 | 22 | ||||||||||||||||||
| Total Transformation Strategy Costs | 281 | 17 | 294 | 31 | ||||||||||||||||||
| Net Loss (Gain) on Divestiture | — | (5) | — | 4 | ||||||||||||||||||
| Reversal of Income Tax Valuation Allowance | — | 13 | — | 23 | ||||||||||||||||||
Total Non-GAAP Adjustments to Income Tax Expense | $ | 281 | $ | 25 | $ | 294 | $ | 58 | ||||||||||||||
| Total Adjustments to Non-GAAP Net Income | $ | 891 | $ | 29 | $ | 933 | $ | 112 | ||||||||||||||
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:
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Transformation Strategy Costs
We exclude the impact of charges related to initiatives within our transformation strategy. Our transformation strategy initiatives 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.
Various circumstances precipitated these initiatives, including identification and prioritization of certain 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 has included the following initiatives:
Transformation 2.0: We reduced spans and layers of management, reviewed and refined our business portfolio and invested in certain technologies to reduce costs, increase visibility and reduce reliance on legacy systems. Costs associated with Transformation 2.0 consisted primarily of compensation and benefit costs related to reductions in our workforce and fees paid to third-party consultants. This initiative was completed in 2025.
Fit to Serve: We undertook our Fit to Serve initiative to right-size our business to create a more efficient operating model that was more responsive to market dynamics through a workforce reduction, primarily within management. This initiative was completed in 2025.
Network Reconfiguration and Efficiency Reimagined: 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 Package 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 further reductions in our facilities, vehicles, aircraft 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 and enhance our business performance and profitability beyond ordinary ongoing efforts. Through these initiatives we have reduced our operational workforce and closed certain daily operations at leased and owned buildings. In the first half of 2026, we closed 45 leased and owned buildings, 44 of which have been permanently closed. In the first six months of 2026, we achieved approximately $1.2 billion of program benefits from these initiatives. We expect to achieve approximately $3 billion in full year 2026 benefits from these initiatives.
As a part of these initiatives, we expect non-GAAP adjusted operating expense to exclude between $1.3 and $1.5 billion in cost during the full year 2026, primarily related to employee separation costs and third-party consulting fees of which $1.1 billion is related to the Driver Choice Program. As of June 30, 2026, we had incurred costs to date of $1.8 billion, including $1.2 billion in 2026, as a part of these initiatives. These initiatives are expected to conclude by 2027.
We do not consider the related costs to be ordinary because each program involves separate and distinct activities that span multiple periods, and such costs are not expected to drive incremental revenue. These initiatives exceed ordinary, ongoing efforts to enhance our business performance and profitability.
In addition, we have incurred and expect to continue to incur other costs and benefits associated with our Network Reconfiguration initiative 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 six months ended June 30, 2026, we recorded $60 million in gains on sales of properties related to this initiative. We expect the costs and benefits associated with these actions may increase should we determine to close additional buildings.
For more information regarding transformation strategy costs, see note 16 to the unaudited, consolidated financial statements.
Goodwill and Asset Impairments
We exclude the impact of goodwill and certain asset impairment charges. We do not consider these charges 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, see note 7 to the unaudited, consolidated financial statements.
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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Gains and Losses Related to Divestitures
We exclude the impact of gains or losses related to the business divestitures. We do not consider these gains or losses to be a component of our ongoing operations, nor do we consider their impact when evaluating the operating performance of our business units, making decisions to allocate resources or in determining incentive compensation awards.
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. As a result of property sales during 2025, these capital losses were fully realized within that year. We supplement our presentation with non-GAAP adjusted financial measures that exclude the impact of the reversals of the valuation allowances against these deferred tax assets as we believe such treatment is consistent with how the valuation allowance was initially established.
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 in any period is calculated as non-GAAP adjusted operating expenses divided by total volume. 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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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 12 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. Our allocation methodologies are refined periodically, or as necessary to reflect changes in our businesses. During the six months ended June 30, 2026, there were no significant changes to our allocation methodologies.
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, 2026, we had two aircraft temporarily idled for an average period of approximately six 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 operational service during the third and fourth quarters of 2026. Following the permanent grounding and retirement of our MD-11 fleet in the fourth quarter of 2025, we experienced increased third-party lease expense to address capacity constraints. During the six months ended June 30, 2026, we took delivery of five Boeing 767-300 aircraft, which were accounted for as finance leases, and began to reduce the associated third-party expense.
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 fair value of a reporting unit is less than its carrying amount. Testing goodwill for impairment requires that we make a number of significant assumptions, including assumptions related to projections of future revenues, costs, capital expenditures, working capital, our cost of capital, long-term growth rates, market comparables and discount rates. We are also required to make assumptions relating to our overall business and operating strategy, and the regulatory and market environment.
For each of our reporting units, we continue to monitor the impact of macroeconomic conditions and business performance on our estimates of fair value. As of our July 1, 2025 testing date, approximately $877 million and $738 million of our $4.8 billion consolidated goodwill balance was represented by our Global Freight Forwarding ("GFF") and Healthcare Logistics and Distribution ("HLD") reporting units, respectively, included in SCS. Based on our most recent annual impairment evaluation, both reporting units exhibited a limited excess of fair value above carrying value and reflect a greater risk of an impairment occurring in future periods. An interim quantitative test for goodwill impairment performed in the fourth quarter of 2025 on the GFF reporting unit did not result in an impairment. At June 30, 2026, none of our reporting units had indications that an impairment was more likely than not. For further discussion see note 7 to the audited, consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025.
Challenging macroeconomic and uncertain geopolitical conditions, 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. These factors or a combination thereof could result in a non-cash impairment charge in one or more of our reporting units during a future period.
33
UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
U.S. Domestic Package
| Three Months Ended June 30, | Change | Six Months Ended June 30, | Change | |||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||
| Average Daily Package Volume (in thousands): | ||||||||||||||||||||||||||||||||||||||||||||
| Next Day Air | 1,411 | 1,429 | (1.3) | % | 1,389 | 1,474 | (5.8) | % | ||||||||||||||||||||||||||||||||||||
| Deferred | 792 | 825 | (4.0) | % | 798 | 845 | (5.6) | % | ||||||||||||||||||||||||||||||||||||
| Ground | 13,799 | 14,299 | (3.5) | % | 13,833 | 14,672 | (5.7) | % | ||||||||||||||||||||||||||||||||||||
| Total Average Daily Package Volume | 16,002 | 16,553 | (3.3) | % | 16,020 | 16,991 | (5.7) | % | ||||||||||||||||||||||||||||||||||||
| Average Revenue Per Piece: | ||||||||||||||||||||||||||||||||||||||||||||
| Next Day Air | $ | 28.55 | $ | 25.07 | $ | 3.48 | 13.9 | % | $ | 28.18 | $ | 25.06 | $ | 3.12 | 12.5 | % | ||||||||||||||||||||||||||||
| Deferred | 21.74 | 19.39 | 2.35 | 12.1 | % | 21.35 | 19.47 | 1.88 | 9.7 | % | ||||||||||||||||||||||||||||||||||
| Ground | 12.35 | 11.46 | 0.89 | 7.8 | % | 12.25 | 11.46 | 0.79 | 6.9 | % | ||||||||||||||||||||||||||||||||||
| Total Average Revenue Per Piece | $ | 14.24 | $ | 13.03 | $ | 1.21 | 9.3 | % | $ | 14.08 | $ | 13.04 | $ | 1.04 | 8.0 | % | ||||||||||||||||||||||||||||
| Operating Days in Period | 64 | 64 | 126 | 126 | ||||||||||||||||||||||||||||||||||||||||
| Revenue (in millions): | ||||||||||||||||||||||||||||||||||||||||||||
| Next Day Air | $ | 2,578 | $ | 2,293 | $ | 285 | 12.4 | % | $ | 4,932 | $ | 4,654 | $ | 278 | 6.0 | % | ||||||||||||||||||||||||||||
| Deferred | 1,102 | 1,024 | 78 | 7.6 | % | 2,147 | 2,073 | 74 | 3.6 | % | ||||||||||||||||||||||||||||||||||
| Ground | 10,908 | 10,484 | 424 | 4.0 | ||||||||||||||||||||||||||||||||||||||||
Next expected filings
- ~2026-11-04 10-Q expected by 2026-11-08 (in 70 days)
- ~2027-02-16 10-K expected by 2027-02-24 (in 174 days)
- ~2027-05-05 10-Q expected by 2027-05-09 (in 252 days)
- ~2027-08-04 10-Q expected by 2027-08-08 (in 343 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-08-18 8-K Other Events; Financial Statements and Exhibits
- 2026-08-14 424B5 Prospectus Supplement
- 2026-08-12 8-K Other Events; Financial Statements and Exhibits
- 2026-08-11 424B5 Prospectus Supplement
- 2026-08-05 10-Q Quarterly Report
- 2026-07-28 8-K Earnings Release; Financial Statements and Exhibits
- 2026-06-15 8-K Officer/Director Change
- 2026-05-13 8-K Officer/Director Change
- 2026-05-11 8-K Officer/Director Change; Shareholder Vote Results; Financial Statements and Exhibits
- 2026-05-07 S-8 Employee Benefit Plan Registration
- 2026-05-06 10-Q Quarterly Report
- 2026-04-28 8-K Earnings Release; Financial Statements and Exhibits
- 2026-02-17 10-K Annual Report
- 2026-02-06 8-K Officer/Director Change
- 2026-01-27 8-K Earnings Release; Financial Statements and Exhibits