UPS 4Q14 Earnings Call Notes

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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.”