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September 26, 2024

VIA EDGAR

U.S. Securities and Exchange Commission

Division of Corporation Finance

Office of Energy & Transportation

100 F Street, N.E.

Washington, D.C. 20549

Attn: Yong Kim and Karl Hiller

Re:      United Parcel Service, Inc.
Form 10-K for the Fiscal Year ended December 31, 2023

Filed February 20, 2024

File No. 001-15451

Dear Ms. Kim and Mr. Hiller:

This letter contains our response to the comments received from the staff of the U.S. Securities and Exchange Commission on August 28, 2024 by letter dated July 25, 2024 (the “Letter”) regarding the filing listed above by United Parcel Service, Inc. (references to the “Company” or “UPS” include any or all of United Parcel Service, Inc. and its subsidiaries).

For ease of reference, we have repeated the caption and comment contained in the Letter below, in italics, together with the subheadings used in the Letter.

Form 10-K for the Fiscal Year ended December 31, 2023

Management's Discussion and Analysis, page 23

1.We note that you present various non-GAAP measures on pages 24 through 42, although differentiation from similar GAAP measures is limited to using the term adjusted in the label (e.g. adjusted diluted earnings per share; segment measures of adjusted operating expenses, adjusted operating profit, and adjusted operating margin; and consolidated measures of adjusted compensation and benefit, adjusted total other expense, adjusted total operating expenses, adjusted investment income and other, adjusted other income and (expense), adjusted income tax expense, and adjusted effective tax rate).

We believe that disclosures made in presenting non-GAAP measures should more clearly convey their nature as non-GAAP measures, than is provided by the term adjusted in isolation of the term non-GAAP, either within the label, as a header to

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sections within tabulations that include such measures, or in close proximity to an associated discussion and analysis. Please modify your disclosures as necessary to clearly identify any adjusted measures that are not compiled in accordance with GAAP, as non-GAAP measures, consistent with the guidance in Item 10(e)(1)(ii)(E) of Regulation S-K and the Answer to Question 100.05 of our Compliance & Disclosure Interpretations for Non-GAAP Measures. You may view this guidance at the following website address: https://www.sec.gov/corpfin/non-gaap-financial-measures.htm

RESPONSE:

The Company acknowledges the Staff’s comment and, in response, in future filings and other disclosures, the Company will more clearly identify measures that are not compiled in accordance with GAAP as non-GAAP measures.

For purposes of example only and without intending to identify every such instance, the following illustrates how the Company intends to identify tabular and other such non-GAAP measures beginning with its disclosures for the quarter ending September 30, 2024, as if such disclosures had appeared in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (additions noted in underlined bold italics):

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U.S. Domestic Package

  Year Ended December 31,  Change

  2023  2022  $  %

Average Daily Package Volume (in thousands):

Next Day Air 1,757    1,992      (11.8) %

Deferred 1,224    1,553      (21.2) %

Ground 16,049    17,242      (6.9) %

Total Average Daily Package Volume 19,030    20,787      (8.5) %

Average Revenue Per Piece:

Next Day Air $ 22.17    $ 21.06    $ 1.11    5.3  %

Deferred 16.38    15.07    1.31    8.7  %

Ground 11.03    10.81    0.22    2.0  %

Total Average Revenue Per Piece $ 12.40    $ 12.11    $ 0.29    2.4  %

Operating Days in Period 254    255

Revenue (in millions):

Next Day Air $ 9,894    $ 10,699    $ (805)   (7.5) %

Deferred 5,093    5,968    (875)   (14.7) %

Ground 44,971    47,542    (2,571)   (5.4) %

Total Revenue $ 59,958    $ 64,209    $ (4,251)   (6.6) %

Operating Expenses (in millions):

Operating Expenses $ 54,882    $ 57,212    $ (2,330)   (4.1) %

Non-GAAP adjustments to operating expense

One-Time Compensation Payment (61)   —    (61)   N/A

Transformation Strategy Costs (266)   (121)   (145)   119.8  %

Incentive Compensation Program Design Changes —    (431)   431    (100.0) %

Long-Lived Asset Estimated Residual Value Changes —    (25)   25    (100.0) %

Non-GAAP Adjusted Operating Expenses

 $ 54,555    $ 56,635    $ (2,080)   (3.7) %

Operating Profit (in millions) and Operating Margin:

Operating Profit $ 5,076    $ 6,997    $ (1,921)   (27.5) %

Non-GAAP Adjusted Operating Profit

 $ 5,403    $ 7,574    $ (2,171)   (28.7) %

Operating Margin 8.5  %  10.9  %

Non-GAAP Adjusted Operating Margin

 9.0  %  11.8  %

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Operating Expenses

Operating expenses and non-GAAP adjusted operating expenses decreased year over year. The costs of operating our integrated air and ground network decreased $1.5 billion, our pickup and delivery costs decreased $641 million and our package sorting costs decreased $216 million. In addition to the impact of one less operating day in 2023, the overall decrease in operating expenses was primarily due to:

•Lower compensation expense due to a reduction in direct labor hours resulting from volume declines, as well as the impact of incentive compensation program design changes implemented in the fourth quarter of 2022 and reductions in management headcount. These decreases were partially offset by the impact of the first-year contractual rate increase under our Teamsters contract that became effective August 1.

•A reduction in purchased transportation costs, resulting from lower volumes and a reduction in ground volume handled by third-party carriers, as well as the impact of continued strategic initiatives.

•Lower fuel expense driven by lower volumes and decreases in the price of jet fuel, diesel and gasoline.

These decreases were slightly offset by an increase of $259 million in other operating costs.

Notwithstanding the factors discussed above, total cost per piece increased 5.2% for the year, and non-GAAP adjusted cost per piece increased 5.7%, driven by overall reductions in volume while maintaining industry leading service levels. We anticipate that the cost per piece growth rate will remain elevated in the first half of 2024 due to Teamsters contractual wage-rate impacts.

Operating Profit and Margin

As a result of the factors described above, operating profit decreased $1.9 billion, with operating margin decreasing 240 basis points to 8.5%. Non-GAAP adjusted operating profit decreased $2.2 billion, with non-GAAP adjusted operating margin decreasing 280 basis points to 9.0%.

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2.We note that in presenting various non-GAAP measures you have made adjustments to eliminate the effects associated with costs that you have reported as transformation strategy costs, which you characterize as compensation and benefits, or something other than compensation and benefits, on page 131 of your financial statements. However, you have not described your initiatives and strategies sufficiently to understand why these would be excluded in compiling your non-GAAP measures.

Given that you first associated this category of costs with a "multi-year enterprise-wide transformation strategy" in 2018, and have continued to report such costs for six years with no update on the plan, other than to identify an incremental initiative involving workforce reduction at the end of 2023, it is unclear how these costs would not constitute normal, recurring, cash operating expenses that are necessary to operate the business.

Please expand your disclosures to provide information about the transformation strategies undertaken each year, including the associated costs, any qualitative results, and the status of the plans. Please address the guidance specific to MD&A that we have provided in SAB Topic 5:P.4, to the extent directly applicable for restructuring, disposal and exit activities, or by analogy where this would yield meaningful disclosure.

Tell us why you believe the transformation strategy costs are appropriately excluded in calculating the non-GAAP measures that you present, considering the extended period over which such costs are recurring, and explain why you believe the adjustments would not be contrary to the guidance in the Answer to Question 100.01 of our Compliance and Disclosure Interpretations for Non-GAAP Measures, if this is your view.

In conjunction with the foregoing, provide us with a schedule listing the particular facets of each phase of the plan that were implemented each year since the plan was introduced, including the associated costs, and describe the scope and duration of each phase. Please identify the specific changes that were made to processes and technologies, and explain how you have assessed any resulting modernization, quality enhancement, and efficiency, which were initially set forth as objectives of the plan.

RESPONSE:

The Company acknowledges the Staff’s comment and respectfully notes that it considers relevant guidance, including the guidance set forth in Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures (“Question 100.01”), in preparing and presenting non-GAAP financial measures. Specifically, in evaluating the appropriateness of adjusting the impact of transformation-related expenses, the Company considers the nature and effects of the non-GAAP adjustments and how they related to the Company’s operations,

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revenue generating activities, business strategy, industry and regulatory environment as set out in Question 100.01. Acknowledging that the Company incurred, and continues to incur, various expenses over a multi-year period, the Company does not believe that such transformation-related expenses constitute ordinary expenses as contemplated by the Commission. As described in more detail below, the Company has effected its transformation strategy under three distinct programs (Transformation 1.0, Transformation 2.0 and Fit to Serve, each as described in more detail below), each with a series of multiple, discrete projects. As described below, transformation-related expenses were and are not ordinary operating expenses, as many of the expenses and activities constituted separate and distinct components of the transformation strategy, the nature of such activities do not drive incremental revenue, and such activities were not driven by a regulatory change, and such activities were, and remain, such that they could not, and cannot, all be captured in a single period. The scope of the initiatives undertaken by the Company exceeds that of routine, ongoing efforts to enhance profitability and, together with the Company’s global footprint and concurrent timing of the COVID-19 pandemic, necessitated that these activities are carried out over multiple years. The Company believes the exclusion of transformation costs from our non-GAAP adjusted financial results supplements GAAP measures to better enable users of our financial information to assess our ongoing operational performance and compare performance between periods. Consistent therewith, the Company’s continued use of the term “transformation” when describing separate and distinct projects within the transformation strategy has been intended to provide users of the financial information with more consistent information on which to compare our performance between periods during the execution of these distinct strategic initiatives.

In the first quarter of 2018, the Company announced and began implementation of a multi-year, enterprise-wide transformation program. The program contemplated a reduction in non-operations management personnel, investments impacting global direct and indirect operating costs, and changes in processes and technology, which would be undertaken and completed as multiple discrete initiatives (such projects, collectively, “Transformation 1.0”).

In connection with changes in executive leadership during 2020, the Company announced  transformation activities to identify and prioritize investments currently being, or expected to be, made by the Company. As a result of these projects, the Company further reduced positions in its workforce and began initiatives to optimize the Company’s business portfolio and enhance its financial reporting and payroll systems (such projects, collectively, “Transformation 2.0”).

Thereafter, in response to a changing competitive landscape, the Company announced its Fit to Serve program on January 30, 2024, focusing on transformation in different areas of our business and right sizing our business for the future in light of current and expected changed economic conditions. These projects are intended to address changes in our competitive landscape that did not exist when we first contemplated our prior transformation efforts.

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Transformation 1.0

Transformation 1.0 was a fundamental change in the Company’s operating model, moving certain functions from a decentralized operating model supported by disparate technology to a centralized model, leveraging third-party offshore resources to supplement our internal resources. In September 2018, the Company disclosed certain financial expectations from Transformation 1.0, including an expectation of $1.0 billion of improvements in free cash flow and an incremental increase to adjusted earnings per share in the range of $1.00 to $1.20, each by 2022. While the Company materially completed Transformation 1.0 by 2022, the timing of the individual projects and planned separations therein were, in part, impacted and in certain instances delayed by the COVID-19 pandemic.

Workforce Benchmarking:

As one of the initial components of Transformation 1.0, the Company undertook a review of its organizational structure to better align its staffing to targeted levels developed from peer benchmarks. As a result of such review, during a period between the second quarter of 2018 and the second quarter of 2020, the Company reduced its non-operational workforce by approximately 2,500 positions and incurred costs related to voluntary retirement packages, severance and other compensation and benefits. These reductions in non-operational workforce reduced the Company’s compensation and benefits expenses in subsequent periods.

Also during that time, the Company sought to identify separate corporate support functions that it believed exhibited opportunity to realize cost savings through process scaling, workforce centralization and outsourcing or technology enhancements. Prior to the completion of the initiatives discussed below, these functions operated under disaggregated staffing models often organized by geographic region using, in many cases, older systems unconducive to further integration within the Company’s system environment. These conditions contributed to operating models that were considered to be less efficient and less agile than more centralized structures.

Procurement and Finance:

As another, separate component of Transformation 1.0, the Company undertook a transformation of its procurement and finance functions, with multiple discrete projects described below. Costs associated with these initiatives principally consisted of compensation and benefit costs related to internal resources temporarily assigned to one or more projects, and other costs, which represented expenses associated with external service providers and technology.

The Company transformed its procurement function by scaling its processes, centralizing its workforce and modernizing its technology. During 2019, the Company established a centralized procurement model and realized working capital benefits from implementing standard terms with its vendors. The centralized model also enabled the Company to evaluate its sourcing for key commodities and in many cases, obtain more favorable pricing from vendors. Additionally, the Company began implementing cloud-based so