UPS 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

New record shipments

“Total shipments increased 6.9% to 1.1 billion packages, the most ever in a non-peak quarter. The strong performance for the small package team provides momentum as we head into the fourth quarter.”

Locked and loaded for peak season

“UPS has been preparing for peak season 2014 since December 26th last year. We’ve made significant investments in new technology as well as both permanent and temporary capacity. The improvements we’re making will produce benefits for UPS far beyond this year’s peak season. Our people have been working hard to get everything ready for the holiday volume surge that typically starts during Thanksgiving week.”

Surge in online retail sales is predicted

“This year the National Retail Federation is forecasting a 4.1% increase in total retail sales, a full 100 basis points higher than 2013. More importantly for UPS, online retail sales are expected to jump between 8% and 11%.”

Peak capacity is flexible

“you have to remember that some of the capacity that we’re putting on this peak is temporary affordable capacity that we can turn on and off with any of the major hub expansions or modifications will be utilized throughout the year.”

Next day delivery more important than same day delivery

“There are some markets where that same day is an important element and we’ll talk about this at our investor conference. But we think that the majority of Internet shopping anyway happens late afternoon and evening and that the real hotspot is going to be local next day delivery and that’s something we’re working very closely with a number of brick and mortar retailers on to be able to fill from stores that have inventory in that metropolitan area and make deliveries the next day. That’s where the bulk of the demand is, that’s where the economics make sense.”

New CEO’s first call

“Thanks, Joe, and thanks to all of you for participating in my first earnings call as the CEO. And the results discussed this morning represent the effort of more than 400,000 UPS-ers and they’re working very diligently to develop, test and implement new technologies and they’re really making good progress”

UPS 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Growth picked back up in the US

“During the quarter, we saw economies around the world pick up a bit. The U.S. economy did rebound as expected from the weather-related problems in the first quarter”

Europe steady exports pickup in Asia

“In Europe, the economic outlook has remained steady with growth from larger countries offsetting slower, smaller ones. While growth in Asia remains relatively stable, they are seeing an acceleration of overall exports.”

New CEO

“Before I turn it over to David, I want to take a moment to congratulate him on being named UPS’ eleventh CEO.”

Prepping for the cyber holiday surge

“To increase sort capacity, we are opening about 50 new hub source in existing buildings. This will add 5% to our capacity with minimal capital investment. UPS is focused on staying ahead of the holiday shipment surge that starts during cyber week”

Additional capacity will weigh on earnings

“Though these projects will weigh on 2014 earnings, they will pay for themselves in the long run.”

Gap between premium and non premium products has plateaued

“It does seem that it has plateaued. I mean over the last couple of quarters we’re not seeing that gap get any bigger, so it feels like or as long as we can see that growth. And if you see some new technology introductions later this year that might help the express also.”

Rail disruption causing problems for lots of companies

“I think certainly the rail disruption and the congestion this quarter was significant driving both added expense and creating some real challenges on the service side.”

Had to hire more people to work around rail issues

“we also has saw a significant increase in hiring and training needs to offset the abilities of the rails to adhere to our expectations on our customers to meet on time commitments. So we’re in a process of adding additional feeder drivers to offset that costs.”

Hiring people for capacity expansion creates headwinds

“So, clearly, the challenges of us keeping up and training quickly as part of this ramp up does create some headwinds.”

Added costs not necessarily revenue drivers

“We’re adding operations the day after Thanksgiving that does add expense. Over time it may generate more revenue but the real purpose is to smooth out operations”

Technology sets us apart from USPS

“The USPS though really does not offer the same level of service and capabilities that we do at UPS. I think the technology is a differentiator, our integrated service offerings are a differentiator, our guarantees are different.’

Only 55% of the USPS’ costs are related to products, the rest are “institutional”

“only 55% of the USPS costs are actually attributable to products. The rest of those costs are institutional costs and only 5% of those go to the competitive products while 20% of the revenue is from competitive products.”

Obviously B2C making up a greater share of the business

“obviously the market continues to change with the B2C volume making up a bigger concentration of our business and we all see that that results in lower yields due to lighter weights and the mix between the products and the customers that are using those services. We’re continuing to calibrate our pricing models to make sure that we’re aligning to the service that we provide and the price and a long-term strategy remains to achieve that 2%, 3% annual base price increase.”

Not going to push pricing this year, but maybe next year…

“We aren’t looking for dramatic changes. We make sure that over time we are appropriately compensated. Certainly next year will be a little different story than this year. Our primary focus this year is capacity and service. So we’ll talk about that more going forward.”

Intra region shipping taking share from trans-ocean shipping

“We are continuing to see transport or shipments, regional shipments grow at a faster rate than trans-ocean shipments. So intra-Europe, intra-North America certainly seems to be a higher – have a higher velocity and you can see that in our mix change, in our yield change. So, that’s one of the big themes. ”

Europe as a single market continues to evolve

“Europe as a single market is continuing to evolve. Your distribution centers where they are placed there move and as that economy grows and it moves out to the east, the distribution models move with it. The inventories move with it”

Largest domestic volume increase in 14 years

“we’ve delivered a lot of different messages over those 14 years. But this quarter believe it or not was our largest domestic volume increase, 7.4% that we saw in those 14 years, so it’s pretty impressive to get that kind of growth. So the markets are moving in the right direction.”

UPS 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Far short of expectations

“I would like to start my comments today by saying UPS fourth quarter results fell far short of our expectations. ”

Huge e-commerce volumes, and late season surge

“Shipments produced by e-commerce significantly exceeded even our most optimistic forecasts as more and more Americans shopped online.”

“In addition, we experienced a much later peak day than expected as purchasing decisions by consumers shifted closer to Christmas.”

Weather complicated things

“In addition, we experienced a much later peak day than expected as purchasing decisions by consumers shifted closer to Christmas.”

Europe emerging from recession

“on a positive note, Europe began to emerge from recession. Also, cross border trade improved in 2012, express shipments out of Asia remains sluggish.”

E-commerce growing worldwide, not just US

“e-commerce continues to evolve at a rapid pace, not only here in the United States, but around the world.”

Customers care more about price than time

“customers put greater emphasis on cost rather than time in transit.”

Four key areas that need to be improved to avoid repeat of 4Q mess

“First, UPS volume forecasting methods were challenged. The paradigms for planning no longer apply due to the rapidly evolving marketplace.”

“second issue we need to address. UPS network capacity. We are in the process of identifying ways to enhance the throughput of our network. We will make appropriate investments such as facility expansions, process automation, job simplification and the acceleration of the technology implementations”

“we plan to expedite the progress of updating our legacy buildings with automation to streamline the thought process.”

“A third area for improvement is timely and accurate visibility of shipments. As more customers work with UPS to optimize their supply chains, a growing number of trailers were dropped at our facilities with limited visibility to their contents.”

“Lastly, improved communication with our shippers and receivers is needed.”

Holiday season 2014 compressed again

“We are going to spend extra money operationally. We are going to accelerate investments and we are little cautious about exactly how the next peak turns out. It is another compressed holiday season although we get one extra day.”

UPS 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Customers around the world continue to put greater emphasis on cost, rather than time in transit, trading down in the UPS product portfolio.

We believe this trend is primarily cyclical. Over the last few quarters, there’s been a trough in the innovation cycle. Demand for new high tech products traditionally drives express small package and air freight out of Asia.”

“On the other hand, some of the trade down is likely permanent. More international trade is being conducted regionally, and supply chains are becoming more efficient, so the need for the fastest express options may not grow quite as strong in the future.”

“though global economic expansion for the second half of 2013 is still expected, forecasts have been lowered in 10 of the 12 largest economies, including here in the U.S. One area the U.S. continues to struggle with is exports, especially to Europe.”

“The decline in revenue and operating profit was primarily due to the forwarding business unit. UPS experienced double digit reductions in forwarding revenue, driven by lower demand for air freight forwarding from Asia.

Revenue is heavily concentrated from large, high-tech shippers whose business is down significantly from last year.”

“We have already cut our Asia capacity by about 20%, and we will continue to reduce truck routes and schedule frequencies, making adjustments from Asia to the U.S. and Europe, being mindful that we must remain nimble enough to react to surges in demand.”

“Clearly there’s a desire for customers to trade down.”

“as I said earlier in my comments, we’ve been in a trough. We’ll come out of that trough at some point in time in the future. For me to say it’s going to be two quarters or three quarters, I’m not sure, but we know there’s going to be product launches coming up, new innovation coming up. We’re not done innovating new products.”

“And when that happens, again, you’ll see the express product grow. I’m not sure you’ll see express products grow as fast as you did 10 years ago, unless you get a strong global economy and good growth in global trade.”

“First thing I have to do, I guess, is take issue with your framing that the market is a duopoly. Clearly this is a competitive market. The post office is a very large player in the ground business especially, and there’s a number of regional players.”

“some of the trends we’ve talked about do create some challenges and mask that. That goods are getting smaller and lighter. The average weights are down 2% to 3% typically year over year, and that there’s been a transition of goods to some extent from business to business to business to consumer.”

“we think international air freight is at a trough and it’s hard to imagine it getting much worse going forward.”

“We’re really excited about helping brick and mortar retailers provide an omnichannel experience for their consumers that obviously merges the online with the brick and mortar. We’re finding that there’s a lot of customers out there, consumers, that want to order online and ship to store.”

“if you watched the economic statistics, the inventories got liquidated, so inventories are at a pretty low level right now. And U.S. exports were really weak orders. So both those two areas should really help B2B going forward to get back to normal.”

UPS 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

[on same day delivery for e-commerce] “I think that’s what it is right now, an experiment, trying it out. I’m not sure yet the economic feasibility is going to be there for this to be a big service ongoing.”

“Yeah, I think same-day is really going to be a niche offering [for e-commerce] that’s out there. The real story is about omnichannel. We’ve got about 25 or more major retailers that are either using or moving to the UPS omnichannel solutions.

And it’s really about leveraging UPS’s shipping and visibility technologies. It helps enable a seamless connectivity between the retailer’s website, the fulfillment warehouses, the brick and mortar stores, and the consumers and returns. For the retailer, it enables inventory optimization and less markdowns, and for the consumers, it enables faster click to deliver times and greater access to retailer inventory and a broader variety.

So that’s really one of the big stories that’s driving ecommerce and why customers are coming to UPS”

“We do disagree with furloughing of the air traffic controllers, and we also disagree on certain closing of night operations. We think there are more efficient ways that they can cut cost that will not impede commerce. And I think that more and more people are agreeing with that as we go through.”

“Domestically, we’re fairly confident that the U.S. economy will be stable, if unexciting. Internationally, the trade flows have been very volatile, and so we have to stay attuned to that.”

“B2B volume remains fairly sluggish…the omnichannel that Alan referred to actually, when it’s done well, does drive B2B volume. Because in effect your forward stocking inventory in the stores has to be replenished. It shrinks shipment sizes, and so the state of the art retailers are now actually doing more frequent deliveries to stores to keep inventories balanced.”

“the vast majority of our growth was driven by ecommerce in the first quarter. And easy returns are obviously an important part of driving consumers to shop online at a retail website. ”

“I think it’s very difficult to replicate the network that UPS has built over the 105 years we’ve been around.”

“As the world shifts, and we look at what’s manufactured in China, now we see a lot of that manufacturing going down to Vietnam. After Vietnam it could be Indonesia. After Indonesia, India.

So we’re very bullish on the fact that there will be manufacture all around the world. Global trade will certainly increase, although it’s been a little choppy here for the last few quarters. And that will require air freight. And that’s perfectly in our sweet spot.”