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.”