UPS 2Q15 Earnings Call Notes

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…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.”