UPS 2Q17 Earnings Call Notes

David P. Abney – United Parcel Service, Inc.

Industrial production and retail still growing but slower pace than projected

“The latest U.S. GDP forecast for the balance of the year remains unchanged. Industrial production in retail are still growing, although at a slower pace than originally projected. Online purchases, as a percent of retail, grew once again in the latest forecast. Growth rates in Europe are expected to continue to be resilient, with most economies rising. And in Asia, the outlook for China has improved, with growth in that market now exceeding the previous forecast.”

Richard Peretz

Industrial production forecasts were higher three months ago than today

“As we looked, though, at the current data, what we also noticed is although we are seeing some positive trends in many of the different industry types in B2B, we’re a little challenged because the number of stores that are closing is having an impact on growth in the B2B. And so the forecast for B2B, if you go back earlier in the year to today, is not quite as strong because of retail sales and also because industrial production forecasts were higher even three months ago to where they are today.”

FedEx FY 4Q17 Earnings Call Notes

Frederick Smith – Chairman & CEO

Amazon is a great company, but there’s way too much focus on that

“I mean, Amazon is a fantastic company, and it delivers things to all of us. And there is — we deliver a lot of things that are ordered over the Amazon website. We move things for Amazon and so forth, but there is far too much focus on that as opposed to the larger part of FedEx’ business. ”

Rajesh Subramaniam

Moderate growth in the global economy

“We see moderate growth in the global economy. We expect U.S. GDP growth of 2.2% in calendar year ’17 and 2.5% in calendar year ’18. Consumer spending is solid. Investment and trade are rebounding, and measures of business confidence remain high. We see industrial production growth of 1.9% this year and 2.5% next year. For the global economy, we forecast GDP growth of 2.7% for calendar year ’17 and 2.8% for calendar year ’18.”

Continue to experience growth in demand for large, heavy packages

“”We also continue to experience growth in demand for large, heavy package delivery as a growing array of items are now being sold online. Furniture, mattresses, sports and exercise equipment are increasingly moving to the FedEx Ground network for residential delivery. This trend has accelerated over the past 12 months, and we have made adjustments to facilities and investments in sortation technology that enable outstanding service for these larger packages. We’re continuing to analyze pricing and surcharges for oversized packages to ensure that we have appropriate pricing for the service provided.”

Alan Graf

Seen wage and benefit increases offset by automation

We have a great balance between wage and benefit increases offset by productivity gains resulting from investments in IT and automation and volume increases. So not an issue for us at the moment.

Robert Carter

We see applications for blockchain

Well, in addition to finance, we see broad applicability of block chain to handle things like identity management, authenticity, pedigree and custody. So we’re deeply engaged in block-chain technologies, understanding their implications for custodial control and for many of the things that we do. It’s an exciting set of breakthroughs in technology, and we’re staying very close to the leading edge of that.

CSX 1Q17 Earnings Call Notes

Hunter Harrison – President and Chief Executive Officer

Fredrik Eliasson

Truck market continues to see excess capacity

“The consumer sentiment continues to be at high levels, which helps many of our markets especially the intermodal market. At the same time though the truck market right now continues to see excess capacity. But as we move through the year we do expect that to gradually improve in the second half and into ’18. And then, of course, on the favorable side export coal had a very strong year in the first quarter, 8.7 million tons that we moved in the first quarter.”

Auto production clearly flattening out

“As we think about some of the headwinds, we think that auto production is clearly flattening out, and we think for the rest of the year relatively flat. It is probably a good place to think about the auto business, and then while the core chemical market continues to grow at a nice pace we expect crude by rail to continue to decline both year-over-year and sequentially as we move through the rest of 2017.”

Delta Air Lines 1Q17 Earnings Call Notes

Ed Bastian – Chief Executive Officer

Glen Hauenstein

Pace of recovery a little slower than anticipated but seeing improvement

” while the pace of the revenue recovery was a bit slower than what we had originally anticipated, we are continuing to see improvement in revenue trends across our network. Quickly recapping our top line performance, we reported total revenues down 1% on slight declines in passenger and cargo revenues. Our passenger revenue declined $74 million, including $20 million of lower hedge gains. Passenger unit revenues for the quarter came in essentially flat and we were better sequentially each month. In March, system PRASM turned positive marking the first year-over-year improvement since November 2015″

British economy has held up better than anticipated post-Brexit

“And as you know, the British economy so far has held up better than anticipated post-Brexit. While we have heard a lot of noise about people moving and we respond to the demand, and I think we have a lot of levers should we actually see that materialize, but given that we haven’t really seen demand declines yet, I think it would be premature for us to announce what we might do if demand declined. And I think what we have seen is, it’s never been a better time to go to the UK or it’s never been a better time to go to Europe for U.S. travelers. And we have seen an offset of UK point of origin, the U.S. point of origin has more than offset the decline in the existing UK weakness.”

Robust US demand to Europe

“we are seeing very robust U.S. point of sale demand to Europe for the peak summer. And we are believing that for at least from our perspective that most of that will be absorbed by that higher demand. I can’t speak for other carriers.”

Robust leisure demand could lead to capacity growth in excess of GDP

“This cycle we have seen really robust leisure demand. So I think what you will see in the industry, this is just a forecast of when you get to third and fourth quarter, you will see that it’s actually probably going a little bit faster than GDP, because the customers are – the customer base has grown and the fares required to now translate that into RASM are very nominal.”

Paul Jacobson

Fuel presenting a challenge

fuel presented us with our greatest challenge in the March quarter as our fuel expense increased by 26% or $325 million from the prior year. Our all-in fuel price of $1.71 per gallon was up almost 30% as crude prices climbed roughly $20 per barrel from the first quarter ‘16 low levels. Our fuel price also includes $0.09 per gallon of losses from our legacy hedge book during the quarter.

Also had pressure from non-fuel costs

“While fuel was the biggest headwind in the first quarter, we also faced some pressures in non-fuel costs, which drove our CASM ex-fuel up 3.6% higher year-on-year. This was driven by the timing of our maintenance spend, various products investments, employee pay increases as well as pressure from lower capacity during the quarter. “

FedEx FY 3Q17 Earnings Call Notes

Fred Smith – Chairman & CEO

DOT should mandate safety tech in fleets

“Let me make an editorial comment based on what Mike said about our reaching 80% of our FedEx Freight having these new modern technologies in the tractors. Similarly, Ground has been providing incentives and soon all of our independent service providers will be required to have these same types of technologies and quite frankly, the Department of Transportation and the Congress should mandate these technologies. It is simply unacceptable to have vehicles on the road that don’t have these modern technologies that can prevent so many accidents that take place historically because of the inability to stop in time or to change lanes precipitously and so forth. So, every truck load carrier in the United States every LTL carry ground parcel, it should all be mandated and we’re trying as hard as we can to push this technology into every vehicle we have as fast as we have, as we possibly can do it.”

The real story is everything behind the mobile phone

“I think there is one more point to make here and that was Allen’s comment a few minutes ago, the vast majority of FedEx business is business to business. 85% plus of our business has nothing to do with e-commerce. So, Amazon is a wonderful company and they certainly have revolutioned the e-commerce world and we’re not sure what Amazon is going to do one way or another. But the FedEx system that consists of thousands of facilities and the ability to pick up transport and deliver it in one to two business days between any two addresses in the United States has been decades in the making and we think that we have a not great risk of being disrupted to use the term and we obviously as Raj and Dave Bronczek and others are putting a lot of effort into making sure that there is no opportunity for somebody to disrupt us on a substantial scale.So, I think again people focus on the e-commerce because everybody looks at this from their mobile phone forward where the real story is everything behind the mobile phone and that’s what FedEx has in enormous quantities; airplanes, trucks, facility, team members. So hopefully that answers your question.”

Dave Bronczek – President & COO

TNT is largest in FDX history

“The TNT acquisition as I’m sure you know is the largest in FedEx’s history and we have discussed this with you previously. This provides extensive benefits to FedEx, including rapidly accelerating our European and global growth around the world, substantially enhancing our global footprint and leveraging TNT’s lower cost road networks in Europe, Middle East and Asia, producing improved results for the entire corporation. Our global integration teams are working to bring TNT and it’s 54,000 employees and their operations across 200 countries and more than one million shipments daily into the FedEx Express system. The integration of TNT and FedEx is on track with significant progress thus far in fiscal 2017.”

Alan Graf – EVP & CFO

E-com is still the smallest piece of our volume

“Allison, a couple more points, the vast majority of the volume that we carry at FedEx Corporation is business to business and while e-commerce is the fastest-growing piece, it’s the smallest piece. And secondarily, as we discussed many times and we can discuss that at infinitum, we can’t afford the same capital intensity for peak e-commerce volume, which is why we have been backing away from some customers and raising our prices significantly. So that balancing act will continue for us going forward.”

Rajesh Subramaniam

Moderate growth in the global economy

“We see moderate growth in the global economy. We expect U.S. GDP growth of 2.3% and CY ’17 driven by robust consumer spending and stronger business investment. Industrial production growth should rebound to 1.5% this year. GDP and industrial production are expected to grow by 2.5% and 2.4% respectively in CY ’18. For the global economy, we forecast growth of 2.6% for CY ’17 and 2.8% for CY ’18.”

Customers want different delivery locations

“First, we recently announced a long-time alliance agreement with Walgreens or FedEx On-Site. FedEx On-Site is a nationwide network of alternate delivery locations, which is a direct response to our customers setting us they want access to more choices for package delivery and drop off. FedEx On-Site locations include some Albertsons and some Kroger grocery stores as well as select Office Depot, OfficeMax and FedEx authorized ship centers. Adding Walgreens will dramatically increase the number of FedEx on-site locations. Walgreens is an ideal partner. They’re well-respected brand with whom we had a long relationship and are well known for their convenient locations. We already started the rollout and expect nearly 8,000 Walgreens locations with FedEx On-Site in time for this year’s peak season.”

Also offering fulfillment for small and medium businesses

“Second, we also announced the launch of FedEx fulfillment in February. This is an e-commerce logistics solution for small and medium-sized businesses. The strength of the FedEx portfolio allowed us to bring to market a fulfillment solution with advanced warehouse management, the latest same-day cut-off times, two-day ground shipping throughout the United States and a seamless return process.”

Amazon is far from being our largest customer

” Let me just say that Amazon is a long-standing customers of ours and while Amazon does deliver a portion of their packages, they still rely heavily on USPS, UPS and FedEx for delivery and it’s definitely worth mentioning that no single customer represents more than 3% of our total revenue and Amazon is far from being our largest customer.”

Avis Budget 4Q16 Earnings Call Notes

Larry D. De Shon

Residual values are down in the 2-3 point range

“In terms of the market right now, I think it’s consistent with what we’re expecting for the year. Residual values are down in that 2 to 3 point range. We saw the Manheim off-rental index being down a little bit over 3 points year-over-year in January. So I think what we’re seeing is generally consistent with the market as a whole.”

We’re watching the border adjustment tax closely

“It’s a really interesting question, and we’re watching some of the proposals that are out there very carefully. I think there are just too many possibilities and too much uncertainty about what they might look like and how they would be implemented for us to speculate at this point in time. Clearly, one of the things we’re going to watch most closely is whether anything develops with respect to border adjustment taxes that could impact fleet that has the potential to have – to impact us. It’s just really hard to estimate what that could look like, when it might take effect, and what structures or alternatives would be available to help us in that situation. So that one is high up on our radar screen, but it’s really hard for us to speculate at this point in time.

Not seeing a huge impact of ride sharing on our business

“On the second part of your question, as we continue to update our analysis of car-hailing or ride-hailing impacts on our business, and I think what we found is that they’re fairly consistent with the analyses that we’ve been doing before. You can find certain markets that you could see maybe a larger impact than other markets, particularly on the one day or the multiday, but under 75-mile type of rentals. Overall, though, as you look at those rentals as a percent of your total rentals, they don’t really change that much across the country basis. It’s just not that big of a part of our business to begin with. As we’ve said, our average rental is four days and 450 miles, so those kind of short mileage and short length of rental type transactions are not a big part of our volume. So we continue to look at it and we continue to update our analysis, make sure we’re staying on top of it. But we’re not seeing much from the last time we looked at it and we spoke about it.”

David B. Wyshner

Elections had disruptive effect in 4Q

“Sure. Let me tackle the first part related to the fourth quarter. Clearly, we knew the way the calendar was shaping up and that the elections were taking place. I think both of them had a more significant impact than we had expected. For a lot of reasons, I think the elections had just a little bit more of a disruptive effect, and that would be true not only in the week or two leading up to the election. I think that continued for us in the week or two following that.”

Diana Shipping 4Q16 Earnings Call Notes

Anastasios Margaronis

2% projected market increase in 2017

“According to Clarksons, in 2016, a 7% increase in total Chinese seaborne dry bulk imports has been offset to a large extent by a relatively broad decline in dry bulk shipments to other key regions. By current estimate, seaborne dry bulk trade growth is expected to be 1.3% in 2016. The estimate for 2017 stands at $5 billion tons, an increase of about 2% compared to 2016.”

Fleet grow low

“The Clarksons estimates for fleet growth in 2017 is mere 1%. According to Banchero Costa, new orders for – of dry bulk vessels in 2016 amounted to just 36 units, a sharp decline from the 380 new orders placed in 2015 and a massive 933 new order placed in 2013. Only three orders for Kamsarmax were replaced in 2016, compared to a total of 93 units ordered in 2015.”

Steel production peaked in 2014

“According to Clarksons, world steel production declined to 1.3346 [ph] billion tons in 2016. This represents a drop of 0.7% compared to 2015, continuing global production decline since 2014, when production reached the peak of 1.6477 [ph] billion tons. According to Banchero Costa, Chinese steel output during the first 11 months of 2016 was 739.5 million tons, up 0.4% year-on-year.”

There are high stockpiles of iron ore but the behavior is unpredictable

“With stockpiles of iron ore in the past, we have, all of us, not us in Diana proven to be wrong. Every time we felt that iron ore stockpiles are very high. The Chinese would buy more. And when we felt that they didn’t have enough, for some reason they would stop buying. So unfortunately, it’s unpredictable. Their criteria have to do more with how they view the cost of acquiring iron ore and the prospect of utilizing it in their steel industry. So from here onwards what we are looking at is pretty high stockpiles admittedly. But that is not sufficient in itself to make us draw the conclusion that the Chinese are not going to continue buying iron ore, if they feel that it is a opportunity to do so for them.”

Andreas Michalopoulos

Not in a restructuring mood

Hi, Amit, there’s always dialogue with your lenders and we are currently there nonetheless not in any kind of restructuring or any such mood. As we said many times, we let the dust settle. We pay our obligations and that’s where we stand today.

Sysco FY 2Q17 Earnings Call Notes

Bill Delaney

It’s a little slower out there right now

“I think it’s been hard to really discern a consistent pattern on trends. The numbers for this quarter are a little off the first quarter, but not that much. I think we saw some things around the holidays that we think probably impacted a little bit. And I think I’ve got this right, I think October was a little slower and then early November was good and it kind of leveled out again. So it’s kind of up and down by weeks. Some of it’s the way the calendar falls for us this year with the coming off the 53-week year, but I would just tell you it’s a little slower out there right now, but I can’t tell you that we saw anything that was necessarily tied to the elections”

Joel Grade

Lapping fuel costs

” So we talked earlier about the fact that, in this quarter, we actually start to lap some of those results. And that, in fact, did happen. The last few quarters, I think we’ve talked about a roughly $0.04 impact on fuel price. And so, again, what we always focus on internally is managing to a flat cost per case ex-fuel. And, once again, in this quarter, we’ve done that.”

UPS 4Q16 Earnings Call Notes

United Parcel Service (UPS) Q4 2016 Results

David P. Abney

Global economic growth remains generally positive

“Now looking at 2017, the global economic outlook remains generally positive, and forecasts have risen modestly over the last few months. In the U.S., GDP growth for 2017 is forecast to be slightly higher than last year. The expansion of e-commerce is expected to continue, with another year of double-digit growth. On the commercial side of the economy, industrial production outlook has gone from negative to slightly positive. That favorable move is a good sign for the manufacturing sector. However, U.S. exports are expected to face continued headwinds from a strong U.S. dollar. Global growth estimates for 2017 have been largely unchanged. The outlook for both Europe and China has rebounded slightly, although economists are still expecting slower year-over-year growth.”

A new political era has begun

“In the U.S., a new political era has begun, and we look forward to working with the Trump administration and Congress. We expect the economy will be center stage, along with efforts to strengthen U.S. competitiveness. There are opportunities for progress on a number of critical issues that impact economic growth.”

Capex will be higher to grow the business faster

“That all being said, I think how you should think about the CapEx is for the next several years, we’ll be a little higher than we have been, say, the last six or seven years. But it’s all about continuing to create value, continuing to grow this company a little bit faster than historical norms. And that’s why we also guided on the revenue the way we did. So we’ll again talk a little bit more about our CapEx and where we’re headed at the Investor Conference, but I think that gives you a pretty good picture of where we’re headed.”

Trade agreements definitely lead to more volume

“And I can tell you that in every country where the U.S. in the last 10 years has reached a trade agreement, we have seen an actual real increase of packages entering our network going out to these countries, U.S. exports, of a 20% increase. And 20% increase, whether you get the benefit from many bilateral agreements or one multilateral agreement, you can see how that adds up.”

President Trump is not against trade agreements

“And you know in spite of the headlines, and there’s been quite a few, President Trump is really not against trade agreements. Now, he’s made it very clear he wants trade agreements to be fair from a U.S. perspective. And he also has made it clear that versus multilateral agreements, that he’s much more focused on bilateral agreements.”

We are encouraged that the US will focus on trade agreements

“We did get a separate question, and it was concerning TPP and how disappointed are we that the U.S. has withdrawn from TPP negotiations? And obviously, UPS is a big supporter of TPP, and we thought it was a modernized trade agreement for the 21st century. And so, yes, we would like to see multilateral agreements like that get approved. But I can tell you that if you follow the President’s strategy, and you do a series of fairly quick bilateral agreements with the major countries that are involved in TPP or that may eventually have been included in TPP, we think you can still get there, maybe not as quickly as you would in this manner, but we are encouraged that the U.S. is going to focus on trade agreements.”

Union Pacific 4Q16 Earnings Call Notes

Union Pacific’s (UNP) CEO Lance Fritz on Q4 2016 Results

Mexican trade is inextricably linked to our economy

“Sure. So we are paying close attention to all of the talk about potential outcomes as we go forward in terms of impact on either NAFTA or other international trade agreements. Our perspective is that the United States is tightly woven with its trading partners and our consumers benefit greatly from free and open international trade, both from a standard of living perspective, making goods available to them at lower cost than they would be otherwise, as well as creating markets for U.S. goods to be sold into, creating a robust potential growth for U.S. jobs and typically the higher paying U.S. jobs. When we look at the cross-border trade let’s say specifically with Mexico, when you really dig deep, you see that a large percentage, certainly more than half, a lion’s share has value added on both sides of the border and is inextricably linked to our economy. So we’ve been giving that kind of feedback to our elected officials and regulators for a long time. ”

Rob Knight

Core pricing will continue to be challenged in 2017

“In fact, if you exclude coal and international intermodal from the calculation, our core price on the rest of our business lines would be in the neighborhood of about 2% to 3%. Given these market dynamics, our core pricing will continue to be challenged throughout the first part of 2017 before beginning to strengthen later in the year, assuming market conditions improve. That said, I want to reiterate that our pricing philosophy has not changed. We will continue to price our service product based on the value proposition that it represents in the competitive marketplace, at levels that generate re-investable returns. This should result in real core pricing gains, and contribute toward improving margins over the longer term.”

While inflation is rising we have pricing pressures

“Yes, Justin, I guess, I would just kind of build on Lance’s point. We don’t give specific guidance as Lance pointed out, but we are – take one message from us here, that while inflation’s rising, while we have some challenges in the marketplace as it relates to pricing, we are still committed to pricing at reinvestable levels that are above the overall inflation costs in the year. ”

We’re not sitting here holding back investment decisions based on the tax rate

“. I mean, we’re not sitting here thinking about making – holding back, making capital investment decisions based on the tax rate as an example. So I would anticipate that that wouldn’t impact sort of how we treat that and I think it would be to the benefit of us and our shareholders if that played out and we would have the expectation of hanging onto it.”