Brian Newman: Yes.
Operator: Our next question will come from the line of Bruce Chan with Stifel. Please go ahead, sir.
Bruce Chan: Yes, thanks, and good morning, everyone. Just want to ask here on the share shift issue if you’re able to quantify or even qualify the attrition that you’re seeing. And I just ask because I think there’s been a lot of focus on your upcoming negotiations, but just based on your service investments and what are some pretty major, I think, operational changes at your largest competitor. I’m wondering if you’re actually seeing any business wins. Appreciate it.
Carol Tomé: We are definitely seeing business wins. And I’m – I have to give a hat off to our sales team for selling through this environment. We are delivering packages for customers that we’ve never delivered before. Why? Because our service is the best in the industry. But what we see with some of our long-term existing large customers is that their business is changing. And I can give you a few anecdotes if that’s helpful. One of our large customers reports publicly every month their same-store sales. This is a customer who for 80 quarters in a row had positive same-store sales and in the month of March saw negative same-store sales. One of our other customers who has both in-store sales as well as online sales has seen a shift in their customer shopping behavior from online to stores.
So they’re shutting down shifts inside of their warehouses, which make sense for them. So they receive generally macro and a change in consumer behavior impacting our volume, but we’re winning and we just got to go win faster and we will win faster when the uncertainty is behind us. I’m quite convinced of the Teamster negotiation. Customers say, we’d like to ship with you, we’re just going to sit on the sidelines till you’re done. So we just need to get done. And we will.
Operator: Our next question will come from the line of Brian Ossenbeck of J.P. Morgan. Please go ahead, sir.
Brian Ossenbeck: Hey, good morning. Thanks for taking the question. So Carol, you just gave some commentary about some of the volume trends from some of the customers. Are you seeing anything that you would attribute to perhaps demand destruction from parcel rates going up with capacity constraints, with some of the disruptions and surcharges including on fuel? Do you attribute any of the volume weakness to that? And then Brian, maybe you can elaborate a bit more on returns. You mentioned it was a pretty good growth driver in the quarter, but your largest customers also floating the idea of perhaps charging for some returns in the future. I wanted to see if that was some consideration we should think about in terms of what that could do for that volume driver, which seems to be a pretty good one, at least for the time being. Thank you.
Carol Tomé: So to your first question, we don’t see volume disruption because of pricing. We do see product change however. If you looked at our air product in the quarter, it was down year-on-year, more than ground. We see customers moving out of air to ground. Why? Well, we’ve really worked to improve our time in transit. So we’ve got the fastest time in transit now, so you can get your package where it needs to go quicker than before. And people are looking for value. So I can watch customer by customer moving out of air to SurePost, by the way. SurePost is up in the quarter, almost 2%.
Brian Newman: And on the returns business, it’s a great business. The margins are attractive. We saw positive growth in the first quarter as I called out. And a big piece of that is the – over 5,000 stores, we have UPS stores across the country. Carol mentioned 7% of the volume originates in those stores. And it’s a great easy way for consumers to with the returns that are going on as the e-comm economy pursues. So we feel good about that and something we’re building capability in every day.
Carol Tomé: And convenience matters from returns. If you want to get that package back so you get credit back into your wallet, you want a convenient place to return. And with our locations near 85% of the U.S. population within 10 miles of 85% of the U.S. population were extraordinarily convenient.
Operator: Our next question comes from the line of Chris Wetherbee of Citigroup. Please go ahead, sir.
Chris Wetherbee: Yes. Hey, just wanted to you maybe hit on the cadence question again and about sort of how this year progresses on the guidance. I think 56% of the profit on the back half of the year implies around $2.9 billion or so in 2Q. And just any thoughts around the step up we would might see between domestic and international? And then I guess just Brian on the RPP, CPP point, do you have a line of sight? Does the guidance include a flip back to RPP outperforming or outpacing CPP by the end of the year? Is that a volume function? Is that more of a cost function? Just want to make sure I understand sort of how you guys are thinking about that.
Brian Newman: So we’re longer term, Chris, as we’ve talked to you. We’re always going to drive for RPP to outpace CPP. We’re a bit of an extraordinary environment right now with the macros and everywhere they are. So we don’t have margin expansion this year based on the guide. So you won’t see that likely return until 2024. But we feel good about the taking cost and CPP down to low single digit as RPP does come back. So feel okay about that. And then your math is fairly accurate in the second quarter, you’re doing the squeeze the right way.
Chris Wetherbee: Okay. Thank you very much.
Brian Newman: Yes.
Operator: Our next question comes from the line of Ari Rosa of Credit Suisse. Please go ahead.
Ari Rosa: Hey, good morning, Brian. Good morning, Carol. So I just wanted to understand, how do you think about the softer economic environment potentially impacting your discussion with the union? Is there any dimension on which it maybe makes negotiations a little bit easier or gives you a little bit more leverage vis-à-vis that discussion? Thanks.
Carol Tomé: So we look out – we don’t look in the current moment. We look out for where we both want to go as growing and thriving UPS is in the best interest of Teamsters, UPS, and our people. So the current economic environment, it is what it is, but our negotiations are all about the future.
Operator: Our next question will come from the line of Helane Becker of TD Cowen. Please go ahead ma’am.
Helane Becker: Thanks very much, operator. Hi everybody. And thank you very much for the time. I wonder, Brian, if you could talk a little bit about what margins in the stores are like, I feel like you were hinting at their – one of your most profitable business lines. So I’m kind of wondering if you could put some more color to that.
Brian Newman: You’re talking about the UPS stores? So it’s a great foundation for volume origin. We have a royalty relationship that generates a royalty stream that comes in from the stores as far as what income comes into UPS. And as that volume grows, our royalty grows.
Carol Tomé: We do look at the profitability of stores. Because I’m curious, I’m an old retailer. So are the stores profitable? The stores are very profitable, which means franchisees are happy. We add about 100 new stores every year, because this is a great small business to own. And in terms of the royalty fee that comes into our company, there’s some expenses against that. But if you look at the margin against that royalty fee, I would say, it’s the highest margin business that we’ve got.
Ken Cook: Excellent. Steven, we have time for one more question.
Operator: Our last question will come from the line of Stephanie Moore of Jefferies. Please go ahead ma’am.
