UPS 3Q16 Earnings Call Notes

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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.”