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.”