Amit Mehrotra: Got it. Thank you. Good luck with the puppy.
Carol Tomé: Thank you.
Operator: Our next question comes from the line of Allison Poliniak of Wells Fargo. Please go ahead.
Allison Poliniak: Hi, good morning. Just want to go back to the productivity side that the hours deployed, the spread between hours deployed and the volumes certainly narrowed this quarter. I know you talked about some stabilization in April and certainly some cost outs going forward. Just any color on how we should think of that spread? Should it remain positive and maybe expand as we get towards the back half of the year? Thanks.
Brian Newman: Yes. So look – but we’re going to need to take cost out balance a year. It’ll be a big reduction in CPP. We were mid-single digit Allison in the U.S. And candidly, if you had told me wages were going to be up 6% and volume was going to be down 5%, I would’ve expected something like a double-digit CPP about three or four years ago. Nando and the team have done extraordinary job of driving that 6% that we saw in the quarter, but we are expecting low-single digits for the balance of the year. As you think about CPP, it’s going to come from four areas. One, Carol talked about total service plan, and that’s that reducing hours more than volume and managing the headcount. The second is our network. We deal with both ground and error, as you know, and in the ground side, how do we consolidate volume and automated facilities, closed sorts and really focus on the efficiency there.
On the air side, it’s changing the package flows to better utilize the one day network. And in fact, domestic block hours they were down about 4% in the first quarter, we would expect to exit the second quarter at 2x The third piece that we’re focused on is overhead and following the technology group delivering technology efficiency to allow us to do our jobs on the non-op side more efficiently and will continue to reduce headcount as volume warrants. And lastly, fuel. We expect fuel prices to be down double-digit year-over-year in the balance of the year 2Q and 2H. So that will reduce both RPP and CPP. But those four things combined drive a high amount of confidence in a low-single digit CPP balance a year.
Allison Poliniak: Understood. Thanks for the color.
Brian Newman: Yes.
Operator: Our next question comes from the line of Tom Wadewitz of UBS. Please go ahead, sir.
Tom Wadewitz: Yes, good morning. That was really helpful, Brian, in terms of the cost per piece framework, do you have a kind of a comparable thought for looking forward on revenue per piece? And maybe also some – just some commentary on how the pricing environment’s holding up. I think your primary competitor’s pretty focused on margins, cutting cost, cutting capacity. Obviously, you’re doing a good job managing cost and capacity as well. So I think there’s a lot of potential for a good pricing environment, but any thoughts on that? And also just how we think about the drivers of revenue per piece. Thank you.
Brian Newman: Yes. Tom, I’m happy to. And I assume you’re talking about the domestic business. We had guide….
Tom Wadewitz: Yes. Domestic, thanks. Yes.
Brian Newman: Originally to an RPP growth of about 3% this year. Carol mentioned volumes are coming in a bit softer, but we’re holding on to that RPP and the RPP composition, we actually saw close to 5% RPP growth in the first quarter. That was driven by a tailwind in fuel about 200 bps that flips around Tom in the back end of the year where we expect double-digit decline in fuel price. So the way I think about the GRI and the customer mix piece, that should be mid-single digit about 5 points. And then we’ll have about a 200 bps decline from fuel. That gets us right into that, that that 3% range. We did see some headwinds in the product mix, the air to ground in the first quarter, that’ll moderate as we go into Q2 in the back end of the year. So that’s the composition.
Carol Tomé: Yes. May be just a comment on the pricing environment, the keep rate on the GRI is the high as it’s been. In the United States, it’s north of 60%. It’s even higher outside of the United States.
Tom Wadewitz: Okay. Great. Thank you.
Brian Newman: Thanks, Tom.
Operator: Our next question comes from the line of Jordan Alliger of Goldman Sachs. Please go ahead, sir.
Jordan Alliger: Yes. Hi. You talked a little bit about what’s going to drive cost per piece back after the year, but maybe can you talk a little bit about some of the specific buckets notably that other expense was quite a bit higher and is it more opportunity purchase transport? Just trying to get a sense for what – where it’s going to be impacted the most. Thanks.
Brian Newman: Yes. was we were able to take cost out of that. And as you look at the back end of the year from another perspective, we’re certainly getting after a lot of the non-operating costs. We’re taking consulting spend out of the business. We’re taking headcount out of the business. So we’re really driving from a non-ops perspective down to something closer to a 4% of revenue from a cost perspective.
Carol Tomé: And maybe just a comment on that other expense line item because it does look out of sorts, we are moving to Software-as-a-Service. It’s a line item move, right, Brian, you’re the finance person here, but rather than depreciation’s it’s going to move into expect.
Brian Newman: That’s exactly right.
Carol Tomé: So there’s a little bit of a difference if you have Software-as-a-Service for your technology deployment versus what you build.
Brian Newman: Transition of buckets.
Carol Tomé: Thank you.
Brian Newman: Yes.
Jordan Alliger: Got it. And then just a quick follow-up, talked a lot about the domestic environment and stabilization perhaps in April, but what about the Asian export business? Is there anything on that front that, that gives a little confidence right now? Thanks.
Carol Tomé: Well, here’s what we’re seeing in the business, week after week it’s better. It’s still down year-on-year, but it’s better slowly coming out of this negative year-over-year decline of almost 20% in the first quarter. And Kate and her team are doing a masterful job of managing through that. In fact, if you look at productivity outside the United States, our Asia export business down 8.9%, our block hours were down 14% and she’s taking more block hours out in the second quarter even with improvements just to optimize VR network.
Jordan Alliger: Thank you.
Brian Newman: Thanks, Jordan.
Operator: Our next question comes from the line of Ken Hoexter of Bank of America. Please go ahead.
Ken Hoexter: Hey, good morning, Carol and Brian. You talked about the sharp decline in mid-February. I guess you’ve seen this before where we’ve had some stabilization and then the sharp decline inventory still seem high. Maybe your thoughts on the backdrop, and maybe Brian a little more international, you talk about getting to 20% margin on international, but seems like pre-COVID you were operating maybe 16% to 19%. Did something structurally change or the mix change that, that you think that that is the new floor versus in a shifting environment it goes a little bit lower? Thanks.
Brian Newman: Yes, Ken, happy to start. You taking the last piece first, on international, we had guided a couple years ago when we went out with three-year guidance to a 21.5% in international, obviously the world’s changed a lot since then. But the mix of Kate’s business that she’s running and the agility on the network in terms of managing the airflow has I don’t know about a floor, but I think we’re comfortable with the 20%. You’ll see that 20% margin can fairly consistently Q2 through Q4. So we feel comfortable about that in terms of how the business evolves.
Carol Tomé: And on the volume question, again, it goes back to our sales strategy. We have pretty good visibility into the pipeline. We’re just going to pull that pipeline through. In today’s environment with the contract negotiation about a 100 days out to completion, it’s kind of hard to get it pulled through, but we’re going to pull it through when we get that handshake deal.
Ken Hoexter: Thanks, Carol. Thanks, Brian.
Brian Newman: Thanks, Ken.
Operator: Our next question comes from the line of Mr. Scott Group of Wolfe. Please go ahead.
Scott Group: Hey, thanks. Good morning. Brian, just a couple follow-ups on the guidance, the 11% U.S. margin. How does that trend throughout the course of the year? And then the volumes were down – the volumes down 3% for the year, how should we think about Q2? And is the back half sort of flat to positive? Is that what you’re expecting? Thank you.
Brian Newman: Yes. I would say the – in terms of shaping the year, Scott, maybe that helps. We don’t manage in quarters, but to help you shape, I referenced in the prepared remarks, 56% of our full year operating profit coming in the second half for the company. If you look at the U.S. domestic business, I’d expect ADV year-over-year growth rates to bottom in Q2 and then improve from there to your point. And that relates to the actions we’re – as we think about margin, the actions we’re taking on semi variable costs and margins will improve sequentially in Q2 and then throughout. Fuel PPG will reduce both RPP and CPP. So it’s not a material profit impact but I would expect operating margins to be better in the second quarter than in the first.
On the international side, I think ADV will gradually improve through the year. And as I mentioned, we’ll have to see consistency of the op margin for the next three quarters of around 20% in the balance of the year. And then finally it’s supply chain. Revenue should be marginally better in Q2 than Q1, and you can hold that 10% as a full year op margin.
Scott Group: Thank you.
