United Parcel Service, Inc. (UPS)

UPS 
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United Parcel Service, Inc. (UPS)

Q4 2009 Earnings Call

February 2, 2010 8:30 am ET

Executives

Andrew Dolny Vice President, Investor Relations

Scott Davis Chief Executive Officer

Kurt Kuehn Chief Financial Officer

Analysts

Helane Becker Jesup & Lamont Securities Corporation

Jon Langenfeld Robert W. Baird & Company

Gary Chase – Barclays Capital

Tom Wadewitz – JP Morgan

Edward Wolfe Wolfe Research

Ken Hoexter Merrill Lynch

Robin Byde HSBC Securities

William Greene Morgan Stanley

Art Hatfield Morgan, Keegan & Company

David Campbell Thompson, Davis & Company

John Barnes RBC Capital Markets

Justin Yagerman Deutsche Bank North America

David Ross Stifel, Nicolaus & Company

Scott Flower Macquarie Securities

Presentation

Operator

I would like to welcome everyone to the UPS investor relations fourth quarter 2009 earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to our host, Mr. Andy Dolny, Vice President of Investor Relations. Please go ahead.

Andrew Dolny

Good morning, everyone. Welcome to our fourth quarter earnings call. I'm here this morning with Scott Davis, our CEO, and Kurt Kuehn, our CFO, to discuss the company's results for the quarter and our outlook for 2010.

Before we begin, however, I will review the safe harbor language. Some of the comments we'll make today are forwardlooking statements that address our expectations for the company's future performance or results of operations. These anticipated results are subject to risk and uncertainties, which are described in detail in our 2008 10K, and 2009 10Q reports.

These reports are available on the UPS Investor Relations website or from the Securities and Exchange Commission. Today's call is being webcast and will also be available on our Investor Relations website.

In their remarks today, Scott and Kurt will compare results for 2009 and 2008, excluding the effects of adjustments that occurred in both years. Such a comparison is more reflective of UPS' true performance. The adjustments in 2009 that I am referring to include charges of $258 million during the first half relating to the acceleration of the retirement of aircraft and the remeasurement of certain foreign currency denominated obligations.

In the fourth quarter of 2008, we took impairment charges of $575 million in our UPS Freight unit and in the International segment. A reconciliation of these results is included with our earnings announcement this morning and appears on UPS’ IR website in the financial information tab.

In addition, Kurt will refer to UPS' free cash flow, which is a nonGAAP financial measure. Reconciliation is included with the news announcement this morning and is available on the Investor Relations website. Before I turn the call over to Scott, a reminder. During the questionandanswer period, please limit yourself to one question and one followup. Now here's Scott.

Scott Davis

Good morning, everyone. Several times over the last year, I shared with you my conviction that UPS has the ability to manage effectively in response to changing market conditions. That certainly proved true in 2009. UPS has emerged from a very difficult year leaner, more focused, and better positioned to take advantage of improving economic trends. Let me illustrate.

During 2009, UPS improved operating efficiency through a comprehensive costmanagement effort. We demonstrated the nimbleness of our international business unit by quickly adjusting our network to match volume levels and ending the year with operating margins that are near historical norms.

UPS bolstered our technology leadership with the introduction of new mobile shipping applications and the expansion of our WorldShip platform by adding the ability to ship air freight as well as small package and LTL. Our investment for growth continued around the world through new construction in China that will facilitate global trade, facility expansions like Worldport that create network efficiencies, and acquisitions that strengthen our presence in growing markets.

We took our service performance to even higher levels and continued to build upon our environmental commitment as evidenced last week when we were ranked number nine among the top 100 global companies in Maplecroft's Climate Innovation Index.

Lastly, once again UPS produced cash flow and margins that are the best in the industry; and we're not standing still. We're in the process of streamlining our U.S. small package structure. This effort is about improving how we go to market and interact with our customers. It's also about being more efficient with our resources to generate better returns in our domestic business. It will enable us to reduce costs and move market and resources and decision-making closer to the customer.

This restructuring has been in the planning stages for quite some time and would have happened regardless of the business environment. Over the last few years, UPS has greatly expanded the breadth and depth of the solutions we offer. Through this new structure, we now have the opportunity to better deliver the value our solutions bring to small and mediumsize customers. That's what's driving this change.

It will take some time the see the full impact of our new structure. But in the long run, this may prove to be one of the most significant changes to our domestic business in quite some time.

On a different note, the fourth quarter marked the tenth anniversary of UPS' IPO. Going public has helped the company in a number of ways. It affords us greater financial flexibility since we no longer have to support a closely held stock. And the IPO introduced a new voice at the table, outside investors.

While it's been a turbulent decade in the stock market, since the IPO our total return to shareowners has outperformed the S&P 500. Over the last ten years, our brand has become truly global as we expanded our presence around the world.

Read the rest of this transcript for free on seekingalpha.com