Brian Newman
Executive Vice President & Chief Financial Officer at United Parcel Service
Thanks. Carol, and good morning. In my comments, I'll cover four areas. First, I'll review our first quarter results, followed by our 2024 financial outlook. Then, I'll provide some comments on our business with the USPS. And lastly, I'll close with a recap of our 2026 targets.
While the macro environment in the first quarter showed improvement in some areas, continued soft demand pressured all three parts of our business. Through the quarter, we adjusted our integrated network to match volume levels and drove-out expense, while maintaining industry-leading service levels.
Moving to our financial results. Our overall quarterly performance was in-line with our expectations. In the first quarter, consolidated revenue was $21.7 billion, down 5.3% compared to the first quarter of 2023. All three of our segments demonstrated cost agility, and on a combined basis, drove-down expense by $414 million in the first quarter. This enabled us to deliver $1.7 billion in consolidated operating profit, and consolidated operating margin was 8%. Diluted earnings per share was $1.43, down 35% from the first quarter of 2023.
Now, let's look at our business segments. In U.S. Domestic, we remain focused on controlling what we could control to improve volume growth and drive productivity. In the first quarter, average daily volume was down 3.2% year-over-year. When looking at ADV sequentially, the growth rate showed strong improvement compared to the third and fourth quarters of 2023. B2B average daily volume was down 5.5% compared to the first quarter of last year, primarily driven by declines in the retail and manufacturing sectors, and B2B represented 41.6% of our volume.
Looking at product mix, and in-line with recent trends, we continued to see a shift from air to ground as customers prioritize cost savings over transit times by taking advantage of our ground services. Compared to the first quarter of 2023, total air average daily volume was down 8.3%, ground declined 2.3%. And within ground, SurePost volume grew 10.8%.
For the quarter, U.S. Domestic generated revenue of $14.2 billion, down 5%. Revenue per piece was relatively flat year-over-year. Looking at the key drivers, base rates increased the revenue per piece growth rate by 240 basis points. This was offset by a couple of factors. First, changes in customer and product mix due to growth in SurePost, combined with changes in package characteristics, decreased the revenue per piece growth rate by 180 basis points. And second, changes in fuel prices decreased the revenue per piece growth rate by 90 basis points.
Turning to cost. Total expense was down 0.8%, or $104 million in the first quarter. Union wage rates increased 13%, driven by the contractual increase that went into effect last August. Leveraging technology and the agility of our integrated network, we took several actions, which more than offset the increase in compensation. We leveraged total service plan and network planning tools to reduce total operational hours by 6.6%, which was more than the decline in average daily volume. We closed 18 sorts and reduced operational resources by 4.8% compared to last year. We lowered block hours by 15.2% versus last year. We reduced management and support staff by approximately 5,400 positions year-over-year. In addition, we reduced purchase transportation by 17%, primarily from our continued optimization efforts. And lastly, lower fuel costs contributed to the decrease in total expense. The U.S. Domestic segment delivered $839 million in operating profit, down 43.6% compared to the first quarter of 2023 and operating margin was 5.9%.
Moving to our International segment. The macro environment remained challenged, primarily in Europe and Asia. However, volume growth in the Americas region showed early signs of near-shoring. In the first quarter, International total average daily volume was down 5.8% year-over-year. About two-thirds of the decline came from lower domestic average daily volume, which was down 8.1%, driven primarily by declines in Canada and major markets in Europe. On the export side, average daily volume declined 3.6% year-over-year, primarily due to weak manufacturing activity in Europe.
In Asia, export average daily volume was down 4.8%, which was an improvement from the fourth quarter of 2023. Within Asia, export volume on the China to U.S. lane increased 12.8% and showed steady growth for the second consecutive quarter. More than offsetting the overall decline in Asia, near-shoring became evident as export average daily volume in the Americas region increased 3.8%. This was led by SMB customers in Canada and Mexico, leveraging our cross-border ground service. In the first quarter, international revenue was $4.3 billion, down 6.3% from last year, primarily due to the decline in volume.
Revenue per piece increased 2% and included a number of moving parts. Strong base pricing drove a 360 basis-point increase in the revenue per piece growth rate. A decline in fuel surcharge revenue, combined with a stronger U.S. dollar, negatively impacted the revenue per piece growth rate by 80 basis points. And finally, lower demand-related surcharge revenue decreased the revenue per piece growth rate by 80 basis points. In the first quarter, total International expense was down $163 million, a decline of 4.4%. Similar to previous quarters, we leveraged the agility of our integrated network to reduce block hours by 6.6%. Operating profit in the International segment was $682 million, down $124 million year-over-year. Operating margin in the first quarter was 16%.
Now, looking at Supply Chain Solutions. In the first quarter, revenue was $3.2 billion, down 5.3% year-over-year. Looking at the key drivers. Within forwarding, market rates in international air freight continued to drive down top-line revenue. On the ocean side, excess market capacity continued to pressure market rates and drove a decrease in revenue, despite volume growth. And our truckload brokerage unit continued to face soft demand and market rate pressures. Logistics delivered revenue growth and increased operating profit, driven by gains in healthcare. In the first quarter, Supply Chain Solutions generated operating profit of $226 million, down $32 million year-over-year, and an operating margin of 7%.
Walking through the rest of the income statement. We had $195 million of interest expense. Our other pension income was $67 million, and our effective tax rate for the first quarter was 26.8%.
Now, let's turn to cash and shareholder returns. In the first quarter, we generated $3.3 billion in cash from operations. Free cash flow for the period was $2.3 billion. We finished the quarter with strong liquidity and no outstanding commercial paper. Also, in the first quarter, UPS rewarded shareowners with $1.3 billion in dividends.
Turning to our outlook. As Carol mentioned, we are reaffirming our 2024 consolidated financial targets. For the full year 2024, on a consolidated basis, revenues are expected to range between $92.0 billion and $94.5 billion, and we expect to generate a consolidated operating margin ranging from approximately 10.0% to 10.6%.
Looking at the shape of the year. In the first half of the year, we expect consolidated operating profit to be down between 20% and 30%. And in the back half of the year, we expect volume and revenue growth to accelerate as we lap the diversion we experienced as results of our labor negotiations. Additionally, our labor cost growth rate will drop substantially. We will also see the majority of the $1 billion in savings from Fit to Serve. We still expect revenue per piece to outperform cost per piece. And lastly, in U.S. Domestic, we expect to exit the year at a 10% operating margin.
Looking at cash flow and capital spending. For the full year in 2024, we still expect capital expenditures to be within our target of around 5% of revenue, or $4.5 billion. We're reviewing certain aspects of our pension strategy, and so we expect free cash flow to be within a range of approximately $5.9 billion to $6.7 billion, before reflecting any pension contributions.
Now, let me share more detail about servicing air cargo for the USPS. This is good business for us, and we are moving quickly to begin onboarding this cargo. We will leverage our integrated network and existing assets, and we expect the majority of the volume will fit within our current U.S. Domestic day-time flight operations. Our operators and engineers are already planning the network to support the complete transition to UPS in the third quarter.
In terms of financial reporting, the revenue and expense associated with USPS air cargo will show up in the SCS other line in our financial reporting. Adding the USPS air cargo volume to our existing network will result in a higher share of the network cost being allocated to SCS, indirectly benefiting our U.S. Domestic segment. We expect to see a benefit to operating margins this year at both a consolidated level and within the U.S. Domestic segment.
To wrap up, we are also reaffirming our three-year consolidated revenue and operating margin targets we put forth at our March Investor and Analyst Day. Specifically, we aim to grow revenue to be between $108 billion and $114 billion by 2026. The high-end of the range includes inorganic opportunities, primarily in healthcare and international. Additionally, we expect to expand our consolidated operating margin to more than 13% by 2026, which includes expanding our domestic operating margin to at least 12%. And I'll note that the USPS volume is consistent with our Better and Bolder approach to grow in the parts of the market that leverage our integrated network, and it gives us a strong start toward our 2026 targets.
With that, thank you. And operator, please open the lines.
