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.”

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.”

UPS 3Q16 Earnings Call Notes

United Parcel Service (UPS) Q3 2016 Results
David P. Abney

Global growth has continued to be modest

“Turning now to the economy, where global growth has continued to be modest. In the U.S., consumer fundamentals remain healthy and account for most of the economic expansion while the outlook for industrial production remains weak. Overall, global GDP forecasts are slightly down. For the balance of 2016, we continue to see mixed economic signals across some industrial markets. ”

Kathleen M. Gutmann

Total holiday sales are expected to increase by 3.6%

“In the overall U.S. market, the National Retail Federation expects total holiday retail sales to increase 3.6%. They’re also estimating non-store retail sales growth between 7% and 10%.”

Alan Gershenhorn

Our ecommerce value prop is second to none

“as we all know, our customers, and specifically our ecommerce customers, have a number of different channels that they can access in order to market and transport their goods. And there’s Fulfillment by Amazon, there are marketplaces out there, and obviously direct from their website. We really support our customers in all three of those areas. And I think, like David said, our ecommerce value proposition is really second to none, and it’s convincing both the bricks and clicks type of etailers in the ecommerce pure plays to give more and more of their business to UPS. So we’re excited about the overall prospects of ecommerce in the marketplace, and we’re making the necessary adjustments to essentially support all the various channels that our customers use to bring their goods to market.”

Still seeing softness in industrial out there

“Yeah, so as we said, our B2B is up about 2%. It’s best growth we’ve had there in five quarters. As you know, the B2C is very strong at double-digit. Specific to your question, on the returns, returns growth in ecommerce is also very strong. It’s growing in the mid-teens. Again, you got to keep in mind that returns is a small part of our B2B market, but it’s a large part of the growth that we’re seeing today. As concerns the remainder of the B2B market, we’re still seeing the softness in industrial production out there. ”

One in six e-com packages are returned and those are highly profitable packages for us

” when you look at the ecommerce market, it could be one in five or one out of every six packages that are shipped to a consumer get returned. So the growth in that particular market tracks very closely to the growth in ecommerce on that one to five, one to six ratio. Those packages are highly profitable. First of all, many of those packages get dropped off and don’t have to be picked up because the consumer finds it more convenient to drop them off at UPS stores or UPS Access Points or hand them to a UPS driver. So there’s very little cost when it comes to pick-up. And then obviously, the deliveries are going back to businesses, and we could be delivering tens or hundreds of packages back to these businesses. So it’s a highly profitable B2B delivery with very little pick-up cost.”

Myron A. Gray

Answer on automation question

“When it comes to the use of drones as well as vehicles that allow us to have autonomous trucks on the road, we have experimented with drones with a number of vendors. You should’ve seen an announcement where we launched our first try in the Northeast earlier this year. It was very successful, as well as our use in delivering medications in Africa. So we’ll continue to experiment until we get the ability to use it. As it pertains to vehicles, we’re continuing to work with a number of vendors to explore what works best for us. We have what we term as a rolling laboratory. We have over 6,500 vehicles in the U.S. right now that are considered CNG, LNG, and the sort. Of course, all of this will require the approval from the National Highway and Traffic Association.”

UPS 2Q16 Earnings Call Notes

United Parcel Service’s (UPS) CEO David Abney on Q2 2016 Results

B2C strong B2B not as much

“Turning to the economy, the consumer market in the U.S. remains healthy and e-commerce forecasts have been elevated for 2016. And we’re seeing that growth. On the other hand, our B2B volume is affected by the continuing weakness in industrial production. In fact, global GDP and industrial production growth forecast have been downgraded slightly. Delayed inventory drawdowns and soft export demand likely will remain headwinds in the latter part of 2016. ”

Mindful of political commentary on trade

“Additionally, we’re mindful of the current political commentary on trade. Increased trade not only bolsters business but also produces jobs here in the U.S. and abroad. Historically, following ratification of trade deals we have seen about a 20% increase in U.S. exports to the countries involved. UPS is a steadfast proponent of trade and supports agreements that minimize friction in the global supply chain. Trade legislation to accelerate economic expansion like the Trans-Pacific Partnership is vital to the health of the U.S. economy. We encourage our political leaders to support and pass pending trade legislation.”

Consumers want alternative delivery locations

“We recently released the fifth annual U.S. Pulse of the Online Shopper study that highlights some of these changing trends. This year’s survey revealed that most shoppers prefer home delivery while also expressing an interest in an alternative delivery location. To provide more delivery options, UPS is expanding our Access Point locker program in several major U.S. markets. ”

Brexit adds some complexity but our job is to simplify the complex

” Brexit we don’t see changing that for that market, quite frankly. Our job is to continue that priority, number one, to take care of that economy and the consumers, our employees and the shareholders and link it into that European network. So that is priority one. The issue obviously becomes what the free-trade agreement is set up to be. Don’t forget a couple of things from my perspective, one is there are many, there’s a number of free-trade agreements in that union, as well. You’ve got the Norway model, you have got the Swiss model and you’ve got the EU model. So how it unfolds we will see but there are various models that could unfold. We’ve analyzed scenarios as far left as the WTO setup all the way back to something close to what they have today. In the end I think our priority is to advise and advocate and support consumers at the free-trade agreements are finalized in the coming years and then continue to whatever happened support that market in the network. I think we could easily say there will be somewhat more complexity but I think our job is to simplify the complex in a network for consumers and continue the great service. And that’s what we plan to do as that unfolds.”

Alan Gershenhorn

Seeing a slight increase in B2B

On the commercial B2B side we did see a slight increase. The good news is we’ve seen a slight increase the last few quarters there. It’s mainly being driven actually by the retail sector and returns but we’re seeing some growth in some other areas. Wholesale, healthcare and professional services are some of the other areas and then also consumer and home goods. As you know industrial production, as David indicated, was pretty soft and B2B is really being driven now by retail and some of those other sectors that I have spoken about.

UPS 1Q16 Earnings Call Notes

United Parcel Service (UPS) David P. Abney on Q1 2016 Results

Consumer spending remains primary catalyst for growth

“GDP forecasts continue to be revised downward, yet consumer spending remains the primary catalyst for growth in the economy and e-commerce sales have again exceeded the expectations. On the other hand, industrial production remains below 2015 levels.”

US GDP has obviously weakened. Some things that are good, some things that concern you

” I’ll give the same impression to that that I would to the customers, that is it’s very mixed. And U.S. GDP has obviously weakened. Even today, the numbers that came out quarter-over-quarter has showed weakness and year-over-year slight deterioration. But again, you can look and you can find bright spots and then you can find things that worry you. On the one hand, consumer spending continued to be the primary economic driver in the U.S. On the other hand, industrial production has been disappointing; although I can say there has been some recent data on manufacturing that is showing some sign of expansion. On the one hand, again, online retail is continuing to grow much faster than many expected. On the other hand, the especially brick-and-mortar retailers have not done so well. Again, on one hand, inflation and unemployment have stabilized, although wage growth, of course, has been muted. And when you look at it internationally, I think the same thing, you’re going to see positives and you’re going to see things that concern you. From the European Union, we still expect to see that economy grow at a fairly solid pace compared to the recent past, but there are signs of slowing, especially in some countries.”

Alan Gershenhorn – Chief Commercial Officer & Executive VP

Same day e-commerce has challenges

“Currently, as you know, same-day for e-commerce has challenges with consolidating density and single-piece stop economics that could create profitability issues as these companies look for the low-cost model. Deliv’s goal is pretty unique. It consolidates multiple deliveries on one driver with pickups from multiple stores at a mall, for example. So we’re looking to get some key learnings there.”

There’s really more demand for local next day

“At the same time, we believe that because the lion’s share of shopping takes place in the late afternoon and evenings, there’s much more demand for local next-day, which really speaks to the latter part of your question about omnichannel. ”

Omnichannel is a growing trend internationally too

“omnichannel is a growing trend in the retail industry. We’re seeing 30% year-over-year growth in UPS accounts in 2015, and that means at the store level, we’ve got about 120,000 ship from store locations that are shipping or have the potential to ship. We’re starting to see this phenomena start to take place also outside the U.S. in our International business.”

UPS 4Q15 Earnings Call Notes

United Parcel Service’s (UPS) CEO David Abney on Q4 2015 Results

We feel like we delivered the peak

“A year ago, we laid out a plan for successful peak in 2015. This year, through the extraordinary efforts of UPS’ around the globe, we delivered the high quality service that customers deserve and the financial discipline that shareowners expect.”

Collaboration with customers was key

“I want to spend some time discussing how we capitalized on our peak season opportunity by managing the challenges it creates. I can sum it up in three words: collaboration, control, commitment. Expanded collaboration with customers combined with key investments were central to our success.”

Global economic conditions remain uncertain

“Looking at the global economy, conditions remain uncertain with the first half of 2016 continuing the mixed economic trends from the last half of 2015. Across Europe and Asia, GDP growth was modest in 2015. However, slight improvements are expected this year. At the same time, we continue to see challenges in emerging markets in 2016.”

Richard Peretz

Expecting 6-8% revenue growth in 2016

“We expect 2016 to be another good year at UPS. Revenue should increase between 6% and 8%. Looking more closely at the segments, in the U.S., the domestic segment average daily volume should increase about 2% to 4%, driving revenue up 4% to 6%. ”

Alan Gershenhorn

Delivered 612m packages over the peak period

“Hey, Tom, this is Alan. Yes, certainly, it was a solid peak season. We delivered more than 612 million packages over the peak period. It’s the most in the company history, up about 7%.”

Inventory to sales ratio has come down slightly but is still elevated

“as you probably all know, the U.S. inventory sales ratio has come down slightly but it still remains elevated, certainly indicating we got continued overhang of inventories in the economy. And customers are obviously attempting to work them down.”

We can manage through weak IP better than in the past because we are up to 60% residential deliveries

“I think the story with industrial production has been happening now for quite a while. Certainly, it’s trending more negative than it has been. Our business today, as Rich said, even at peak season, we were up to 60% residential, so about half of our business is on the retail e-commerce side now. And I think we are going to be able to manage through that real well. I think the value proposition that we have in place for both retail and the other industry segments, including industrial manufacturing, high-tech and healthcare bode well.”

Jim Barber

Load factors do appear to be turning up recently

“If you look at about the last year, what we have seen is a continued gap of demand and capacity, but I would say in the last two months of data, what we started to see is some load factors turning up. So as that moves forward, now we also have Chinese New Year coming on us right know, so that will give us our second read. But from that perspective, I think as some of the guys mentioned earlier, the buy/sell spreads, which is reflective of capacity and demand have been at its widest point through 2015. But early indications, there is a little bit of turn towards the end of 2015.”

UPS 3Q15 Earnings Call Notes

GDP growth relatively unchanged

“GDP growth in the U.S. has remained relatively unchanged. E-commerce has continued to expand, but the strong dollar has contributed to lower industrial production growth and softer exports. Global GDP forecast for the second half of the year have come down in leading European markets, including Germany, Poland and the U.K. Asia has also come down slightly, primarily influenced by lower China output.”

Pleased that an agreement was reached on TPP

“we were encouraged that an agreement was reached on The Trans-Pacific Partnership, an accord that is expected to establish the rules of 21st century trade. In the U.S., it now awaits congressional review and approval. We expect the agreement to cut the customs red tape and allow faster clearance of shipments. TPP should also create a more level playing field for private companies when competing with government supported entities. Additionally, tariff cuts and transparency measures will provide benefits to companies on both sides of the Pacific.”

Expecting to complete 10% more e-commerce deliveries around the holidays compared to last year

“The growth of online shopping and returns continues to redefine peak season at UPS and this year between Thanksgiving and New Year’s, we expect to complete about 10% more deliveries compared to the same period last year.”

B2C solid even though mixed bag in the economy

“we look at both internal and external factors and obviously we have a mixed bag in the economy with the negative IP the last quarter and it doesn’t look that’s changing going into the fourth quarter. However at the same time, you have B2C that looks like it’s going to have a solid quarter. E-commerce is still expected to be strong. ”

We have seen some softness in B2B

“we have seen some softness in the U.S. economy and in the third quarter B2B faded a little bit and really we are just seeing mixed signals. And we are seeing growth from the consumer side. So B2B, especially online retail continues to outpace overall retail.”

Forecasting international will be negative again in the fourth quarter

“But there is definitely softness in the manufacturing sectors. International production, as we talked about in the second quarter declined, in the third quarter we have seen acceleration of that decline. And we do estimate that IP is going to be negative in the fourth quarter. Part of that is the continued strength of the dollar certainly affecting exports and then there is just soft global demand, whether it be in China, Asia or wherever.”

B2C continued to improve even with tough comps

“we are seeing continual improvement in the B2C. So quarter-over-quarter, first quarter to third-quarter, our B2C results continued to improve in terms of volume growth and that’s even with some tough comps from last year”

Seeing strong growth in Next Day Air

“we are in fact seeing strong growth in the Next Day Air and deferred products and it is driven largely by e-commerce and specifically in that area we believe we are gaining market share.”

Response to Q about Amazon possibly launching its own delivery network:

“I think we have been successful because of our integrated network that creates the efficiencies and the value proposition. It’s very difficult to match. And you have got to keep in mind, that that’s from pickup through delivery, right, where we are almost making a million pickup today a day and obviously delivering millions of packages a day. And our customers are actually receiving the benefit of that scale efficiency of the integrated network. At the same time, we are cognizant of the competition out there as well as investing in new technologies to improve both service and efficiency.”

The rails had serious operating problems in 2014 and 14 but they’ve improved that so we can put some of that business on rails now

“when you start talking about, especially 2013, a little bit of 2014, our balance between rail and road did had to change and it had to change because the rails had serious operating problems. Part of it was too much volume, part of it was infrastructure. And we have always valued on the service that we can give our customers. That service started being threatened a little bit with the rail difficulties. So we put more on the road. And now we have seen that the rails have improved and they can provide the service that we need and when they do that, it makes it easier to put some of that business on the rails.”

UPS 2Q15 Earnings Call Notes

…Although the economy slowed somewhat…

“In the U.S., we remain focused on growing the business, effective revenue management and delivering operational improvements. Although, the economy slowed somewhat we made progress on executing our plan.”

We urge congress to approve the TPP

“I understand the negotiators are making headway on the Trans-Pacific Partnership agreement. We urge them to resolve final outstanding differences and for the U.S. Congress to approve the agreement. We also encourage negotiators to make progress on TTIP, another critical agreement that will enable international trade.”

International doing well, especially Europe

“Now, let’s turn to the second quarter results. UPS delivered better-than-expected results. The International continues to show strong momentum with key initiatives around the world contributing to our success, especially in Europe.”

Seeing some softening in US domestic business

“The U.S. Domestic business is on track with its revenue management and efficiency gains; however, we are seeing some softening in the economy”

The pace of B2C slowed, while B2B gains were due to omni channel and returns

“The pace of B2C expansion continued slowing, while B2B gains were due to omni-channel and return services in the retail sector.”

International success due to intra european trade, more imports from Europe

“The International success is due to robust export volume growth that remains strong at 5.5% growth driven by an intra-Europe shipment growth of over 8.5%. The strength of the U.S. dollar contributed to greater U.S. import shipments primarily from Europe, while exports out of the U.S. were down slightly as the dollar increased in value.’

Total company results came in better than anticipated thanks to international

“Total company first-half results came in a little better than anticipated, primarily due to the improved International performance”

Recent economic news has been mixed

“to get to the economy, recent economic news has just been mixed and it’s caused us to be cautious. The continued strength of the U.S. dollar and I think this impending rate hike by the Fed appears to be holding back some U.S. growth…Retail has been uneven and we saw it soften a little bit in June.”

B2C I still think secular trends are in place

“We’re certainly, we’re about where we thought we would be. We think the economy was certainly slower for sure. The B2C pace, I think the secular trends are still in place; although, it is slow again, you’ve got to remember we had those tough comps from last year. I’d also say that, on the B2B side as a demonstration of e-commerce, the omni-channel and the returns are still very, very strong.”

Europe is doing well because of a mix of things

“Europe, as we’ve said, it’s about a balanced mix of product mix, yield mix, and then cost management on the back of the capital that we’ve talked about and putting an extra $1 billion of capital into that part of the UPS network. So, it’s really a combination of those two.”

Pan European inventory network shift has helped

“we do see a lot of strong momentum in our International business. And one of the key factors is definitely the pan-European network that we put in place maybe a few years before its time, before the market started shifting to a pan-European inventory replacement model. And now that that transition is happening, we’ve just got the right network in the right place, at the right time”

Fuel surcharges were big headwind to topline numbers

“So, fuel this quarter had the biggest year-over-year change that we expect or that we’ve had in 2015. So, because of the large 300 basis points in Ground and 350 basis point difference in Air, it had a big impact on reported revenue and you see that in the revenue number.”

The manufacturing sector was down slightly, that’s one of the reasons we’re cautious

“And the other part from the industrial, the manufacturing side, we’ve seen four quarters of increase from the manufacturing sector; but really this quarter, we saw that, I was going to call it even, but it was just a slight decrease. So, that’s one of the reasons that we’re a little cautious about the remainder of the year in the U.S. We just want to see if the manufacturing sector rebounds.”

Same day shipping isn’t economic

“there’s a tremendous amount of innovation going on in the retail e-commerce space including same-day. And we all know why that is, is because retail is expected to grow four times the GDP. We saw an announcement this morning about one of the operators closing down their same-day operations. And quite frankly, I think we all know that the challenge is having a valid economic model for low-cost shipping offers. Currently, the same-day free e-commerce has challenges with consolidating density on single piece stock economics that create profitability issues. So, we continue to monitor the space and look for cost-effective solutions that are profitable that can serve the needs of our retailers.”

UPS 1Q15 Earnings Call Notes

14% EPS increase

” am pleased to report UPS produced solid performance across all the segments. Earnings per share increased more than 14% led by International. This segment continues to demonstrate positive momentum as our unmatched integrated network generates high returns and significant value for customers around the world.

North America performed as planned, volume moderated a bit by choice

“The US Domestic segment performed as planned. Our actions on revenue management and pricing drove revenue per piece higher during the first quarter. The pace of volume moderated as we chose to forego some lower yielding opportunities. And in the Supply Chain and Freight segment, revenue and operating profit improved over last year as all three business units made progress.”

Full year guidance 5.05-5.30 unchanged

“In summary, our full year earnings per share guidance is unchanged as $5.05 to $5.30, up 6% to 12% over last year.”

CFO change

“As you know, UPS issued a second press release announcing the retirement of Kurt Kuehn and the appointment of Richard Peretz as CFO. Kurt has served UPS for nearly 38 years and has been the CFO for the last eight. I have come to relying on his leadership and support over many years.”

Dimensional pricing overcoming fuel surcharge headwinds

“Pricing has been a real positive story. We are certainly proud of our sales and marketing team discipline and the value selling. As you can see, we were 200 basis points better than last year’s year-over-year growth rate with even a much larger fuel drag. So the impact came at the high-end of our expectation range and certainly the dim weight along with other revenue management practices contributed to that.”

West coast port gave us some lift, but that’s mitigating now

“The West Coast Port stoppage in the first quarter gave us some lift, that’s mitigating as we speak. But we have to balance that network obviously with the small package network. Chinese New Year, we had a really good new year this year. We had some great alignment of the network to the volume.”

B2B growth stronger than B2C for the first time in a very long time

“or the first time in a very, very long time, our B2B growth was actually a bit stronger than our B2C and as you know, our deferred volumes were also strong and the SurePost while it’s still strong, certainly, year-over-year slowing down as that product becomes more mature. Just keep in mind that this is just a one quarter data and we are still expecting about 3% growth for the year.”

e-comerce starting to generate significant B2BGDP growth not as strong as forecast, but German exports forecast to grow a lot

“from a macro point of view and then I’ll turn it over to Jim. But the – International growth is not expected to be quite as strong as previous estimates. It’s not 2.8% GDP growth versus 3.0%. So the outlook is really mixed at the regional level. In Europe, the growth is estimated to be 1.9%.

So, previously forecasted at 1.7% and that’s really driven by Germany, and one key point here I think is, for the year, the real UPS – excuse – EU real exports are forecasted to grow at 4.8% this year in 2015.”

Overall US is mixed

when it comes to the US, the outlook is certainly mixed. I mean there were some recent disappointing employment news in March and we’ve seen IP and the retail data maybe be not as positive as we would have thought.

There are some headwinds. We talked a little bit about the West Coast Port, don’t know if that’s going to fade away pretty quickly of if this is going to continue. But the strengthening US dollar and the cautious consumer when it comes to spending, but then on the bright side, you see that, ASMO has gotten off to a strong start this year. January over 14% and February, almost that same level. So, I would say that, it’s just a mixed performance.”

We’re a great example of a company burdened by US taxes

“certainly, we continue to look at our tax structure in the very high statutory rate of the US is a drag on US companies. And certainly, we are a great example of that. So, David constantly ask me that question and we do what we can. But, to some extent, we are a business where you have to operate where the volumes are. So there is not a tremendous amount of discretion.”

CFO says farewell

“I’ve had the great fortune from starting as a package driver to assuming the CFO role back in 2008 to have an incredible breadth of assignments and clearly it’s truly transformed both me and my view of the world.

And so, I’ve been honored to have served and helped position this company for the future. But I do know, it’s now time to get out of the way and allow more capable executives like Richard to takeover, little younger, little faster, little smarter.”

“As the official old-timer on the UPS team, I am already dreaming about having some leisure time to do some of the other things I love, maybe learn how to play piano, get in shape and certainly work on my ice fishing will be good places to start.”

UPS 4Q14 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

Strong volumes but weak financial performance

“By now I suspect almost everyone on the call reviewed the press release and Kurt’s audio message from January 23, those that did understand that we’re disappointed in fourth quarter financial results but pleased with our strong service levels. ”

A lot more packages with bigger peaks

“To illustrate the enormity of peak season, consider that during this peak we averaged over 30 million deliveries per day. Looking back just two short years ago, that’s about 6 million more per day than we handled in 2012. In those two years, we saw peak volumes go from 55% above our average day to 75%. This is a trend we expect to continue as e-commerce expands its influence over the retail sector.”

Our main priority was protecting the brand

“our main priority going into peak was protecting the brand. After 2013, we just felt that was something we absolutely had to do. We were successful in doing that. We also made significant progress working with our customers in forecasting capacity, vision, visibility and communications, but the cost associated with providing this quality of service was greater than expected. We built our operating plans to accommodate higher volume and that was based on the volume surge of 2013. So we certainly erred on the side of caution. We did overbuild to some extent and that is the basis for some of our 2015 initiatives where we will be able to eliminate some of that expense lessons learned from 2014.”

Protecting brand is protecting shareholders

“let me tell you that we certainly take our responsibility to our investors very seriously. In fact, when I talk about this first priority of protecting the brand, we believe that was necessary in order to take care of the interest of our investors”

Next day air will decline over time for b2c fulfillment

“we do think that Next Day Air, at least for B2C fulfillment is likely to decline over time. We think the B2B as the industrial base grows there is good opportunity. But, Alan, I know this omni-commerce omni-channel is quite a trend that’s revolutionizing retail.”

Fuel surcharges are a bit of a headwind, but low oil prices are good for the economy

” On the procurement side, it will ripple through into reduced prices we hope for things like tires and some of our commodities. Clearly, the fuel surcharge changes our impact. We did mention that the UPS Freight and the LTL surcharges are a bit of a challenge, but we think in general the reduced fuel prices are good for the economy and will help certainly the U.S. continue to grow.”

January is better because no snowstorms

“I think trends so far in January — certainly things look better than they did a year ago at this time because of the incredible disruption of all the snowstorms. Although those people in Detroit and Chicago right now may not be feeling that way. So we feel pretty good in general.”

We’re trying to get compensated for our value but it’s hard

“Yes, John, I think certainly that is our focus. We may disagree on the speed and the intensity of it. This is a competitive market. It’s not a duopoly, there are multiple players. Part of the value we create, part of why we extract such great returns is the long term success we help our customers get to. So it is a balancing act of trying to milk every dollar out of a couple of days versus creating a sustainable and profitable business year-round and that’s the balancing act we’re heading towards.”