UPS CEO Carol Tomé Talks High Fuel Costs & Holiday Season Outlook

SPEAKER_1 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Scarlett (0:07)

Let's get straight to Romaine Bostick, host of The Close. He joins us live from UPS headquarters in Atlanta with the CEO of UPS, Carol Tomé, for an exclusive interview. Romaine.

Romaine Bostick (0:20)

Thank you, Scarlett. Yes, we are here with Carol Tomé, fresh off the UPS's most recent earnings report, a Q3 number that beat on several metrics and guidance, going higher for the full year. There are a lot of questions right now about the sustainability of the growth, the sustainability of the turnaround that you've orchestrated. What assurances did you give investors today that 2027 looks even better than 2026?

Carol Tomé (0:43)

Well, Romaine, first, welcome to our headquarters here in Atlanta, Georgia. We're delighted to have you here. And I'm super proud of the UPS team because we did report solid results today, including a return to volume growth for our S&B and enterprise customers in the United States. And that gave us confidence to lift the guidance for the full year. In fact, we're heading into the busiest season of the year, which is the peak holiday season. And based on forecasts that we receive from our customers, we expect our volume, our average daily volume, to increase about 25% from the third quarter to the fourth quarter. So given the underlying strength of the business, we're delighted to raise both our revenue and our profit guidance for the year.

And we've created now this algebraic formula of growth going into 2027, which is we'll have volume growth, we'll have revenue per piece growth, our cost per piece will grow, but at a less growth rate than the revenue per piece. So we'll have profit and margin expansion next year.

Romaine Bostick (1:45)

Well, on the revenue per piece and on that cost per piece, I mean, you had decent growth there. I think domestically it was like 6.1% or something. Cost was 5.5%.

I mean, that's lower than obviously what you're making in revenue, but that's still a relatively small gap, only 60 basis points. And I know in the past, you and the other management have talked about a range of maybe 50 to as much as 100 basis points in terms of that differential. How do you get that higher?

Carol Tomé (2:08)

Well, as you know, fuel prices are up.

We drive 5 billion miles a year, and we fly a lot of planes. So in that cost per piece increase in the quarter was fuel. Both fuel as well as the cost of purchase transportation, which is also up. So we still believe that the gap between RPP and CPP, if you will, will range between 50 and 100 basis points.

Romaine Bostick (2:32)

But if we do get a moderation in gas and diesel prices, obviously that would help on the cost side, but some of your revenue per piece was also the result of fuel surcharges. I believe the CFO said something like half of that increase was directly related to fuel surcharges. I assume those surcharges go away if prices go down.

Carol Tomé (2:49)

Well, they will go away, but half of that RPP was in our base rate and mix. And if I look at the cost per piece, 100% of the growth was in fuel and purchase transportation. So if that goes down, we still have RPP growth that would cover any cost.

Romaine Bostick (3:04)

There's been a lot of talk about the transformation of this company. You've been at the helm now for six plus years. You came in with a very clear mandate, and you have executed on that in a lot of ways. But that execution had a lot to do with making this company to a certain extent smaller, not necessarily financially smaller, but smaller in terms of the amount of packages it moves. And I am curious as to why being a little bit leaner in that sense, in your view, is better.

Carol Tomé (3:30)

So we're dispelling the old myth that all packages are created equal and that volume solves all problems, because it's just not true. Instead, we looked at our end-to-end network, our Global Smart Integrated Network, and said, OK, who can we serve best and serve them better than anybody else? And we've determined it's not a lightweight, short-zone box of sweaters. It's actually complex logistics, like complex health care, where we've made significant investments over the past six years. You know, when I got here, our health care revenue was less than $6 billion.

By the end of this year, it will be more than $13 billion.

And we've invested around the world. We have over 20 million square foot, of dedicated square footage for health care logistics. We operate in, gosh, 36 countries. We have 273 buildings. We have coaching capabilities. We have special lay building, control towers. So we have cemented our leadership position as the number one provider of complex health care logistics in the world. It doesn't stop there. We've got growth in other areas as well, but this is certainly one area of focus.