UPS 4Q16 Earnings Call Notes

United Parcel Service (UPS) Q4 2016 Results

David P. Abney

Global economic growth remains generally positive

“Now looking at 2017, the global economic outlook remains generally positive, and forecasts have risen modestly over the last few months. In the U.S., GDP growth for 2017 is forecast to be slightly higher than last year. The expansion of e-commerce is expected to continue, with another year of double-digit growth. On the commercial side of the economy, industrial production outlook has gone from negative to slightly positive. That favorable move is a good sign for the manufacturing sector. However, U.S. exports are expected to face continued headwinds from a strong U.S. dollar. Global growth estimates for 2017 have been largely unchanged. The outlook for both Europe and China has rebounded slightly, although economists are still expecting slower year-over-year growth.”

A new political era has begun

“In the U.S., a new political era has begun, and we look forward to working with the Trump administration and Congress. We expect the economy will be center stage, along with efforts to strengthen U.S. competitiveness. There are opportunities for progress on a number of critical issues that impact economic growth.”

Capex will be higher to grow the business faster

“That all being said, I think how you should think about the CapEx is for the next several years, we’ll be a little higher than we have been, say, the last six or seven years. But it’s all about continuing to create value, continuing to grow this company a little bit faster than historical norms. And that’s why we also guided on the revenue the way we did. So we’ll again talk a little bit more about our CapEx and where we’re headed at the Investor Conference, but I think that gives you a pretty good picture of where we’re headed.”

Trade agreements definitely lead to more volume

“And I can tell you that in every country where the U.S. in the last 10 years has reached a trade agreement, we have seen an actual real increase of packages entering our network going out to these countries, U.S. exports, of a 20% increase. And 20% increase, whether you get the benefit from many bilateral agreements or one multilateral agreement, you can see how that adds up.”

President Trump is not against trade agreements

“And you know in spite of the headlines, and there’s been quite a few, President Trump is really not against trade agreements. Now, he’s made it very clear he wants trade agreements to be fair from a U.S. perspective. And he also has made it clear that versus multilateral agreements, that he’s much more focused on bilateral agreements.”

We are encouraged that the US will focus on trade agreements

“We did get a separate question, and it was concerning TPP and how disappointed are we that the U.S. has withdrawn from TPP negotiations? And obviously, UPS is a big supporter of TPP, and we thought it was a modernized trade agreement for the 21st century. And so, yes, we would like to see multilateral agreements like that get approved. But I can tell you that if you follow the President’s strategy, and you do a series of fairly quick bilateral agreements with the major countries that are involved in TPP or that may eventually have been included in TPP, we think you can still get there, maybe not as quickly as you would in this manner, but we are encouraged that the U.S. is going to focus on trade agreements.”