United Parcel Service, Inc. (UPS)

UPS 
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United Parcel Service (UPS)

Q4 2010 Earnings Call

February 01, 2011 8:30 am ET

Executives

D. Davis - Chairman, Chief Executive Officer and Chairman of Executive Committee

Andy Dolny - Vice President of Investor Relations

Kurt Kuehn - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Analysts

John Barnes - RBC Capital Markets, LLC

Justin Yagerman - Deutsche Bank AG

Garrett Chase - Barclays Capital

Ken Hoexter - BofA Merrill Lynch

Thomas Wadewitz - JP Morgan Chase & Co

Scott Malat - Goldman Sachs Group Inc.

Christopher Ceraso - Crédit Suisse AG

Kevin Sterling - BB&T Capital Markets

Jon Langenfeld - Robert W. Baird & Co. Incorporated

Edward Wolfe - Bear Stearns

Nathan Brochmann - William Blair & Company L.L.C.

Robin Byde - HSBC Holdings plc

Presentation

Operator

Good morning. My name is Steve, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the UPS Investor Relations Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Mr. Andy Dolny, Vice President of Investor Relations. Sir, the floor is yours.

Andy Dolny

Good morning, everyone. Thanks for joining us today. 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 2011. Before they begin however, I want to review the Safe Harbor language.

Some of the comments we'll make today are forward-looking statements that address our expectations for the future performance or results of operations of the company. These anticipated results are subject to risk and uncertainties, which are described in detail in our 2009 Form 10-K and 2010 10-Q reports. These reports are available on the UPS Investor Relations website and from the Securities and Exchange Commission. Today's call is being webcast, and will also be available on the UPS Investor Relations website.

In our earnings announcement today, you'll notice that we recognized a gain of $71 million on the sale of UPS Logistics Technologies Inc. This gain was offset somewhat by $13 million in additional guarantees relating to the German specialized transportation company that we sold in the first quarter. The net effect of these two events provided an after-tax benefit of $32 million, or $0.03 per share. Excluding this transaction, diluted earnings per share for the fourth quarter were $1.8.

In their remarks today, Scott and Kurt will refer to UPS's fourth quarter 2010 results, excluding the impact of this gain. Additionally, all 2010 full-year references and comparisons to 2009 will refer to adjusted results. We believe this is the most accurate picture of the company's performance.

Reconciliations to comparable GAAP measures and free cash flow, which is a non-GAAP financial measure, are explained in the schedules that accompanied our earnings news release. The schedules are also available on the UPS Investor Relations website in the financial section.

Lastly, mark your calendars. I'm pleased to announce that UPS will be hosting an investor conference in Louisville, Kentucky on September 14 and 15. We look forward to showcasing our flagship facilities, highlighting our many capabilities in communicating our plans for the future. More details will be forthcoming.

Now to begin our review, I'll turn the program over to Scott.

D. Davis

Good morning, everyone. Today, UPS reported another quarter of significant growth in revenue and operating profit, with earnings up 44%. This extraordinary results were directly attributable to the superb execution of UPSers around the globe, during an environment of improving economic conditions.

For example, here in the U.S., increased consumer confidence, combined with slightly better employment picture, produced strong retail sales spurred by double-digit e-commerce growth.

In a moment, Kurt will take you through a detailed review of UPS performance. But first, I want to spend a few minutes reflecting on 2010. The appropriate place to start is to say I'm extremely proud of how UPSers collaborated to position the company for success. Much was achieved this past year, and I would like to highlight some of our accomplishments.

I am most impressed with our balance performance across all business segments. For the year, U.S. domestic and international operating profits on a combined basis, are up more than 40% and Supply Chain and Freight up 95%, with the International Supply Chain and Freight segments hitting a record levels.

In 2010, UPS wrapped up key infrastructure projects, including the completion of the Worldport expansion and the addition of a new inter-Asia hub in Shenzhen, China.

We continue to execute our strategy for growth by expanding the UPS brand in emerging markets and growing developing lines of business. We announced several important milestones in these areas, including strategic alliances with UPS service partners in Vietnam, Malaysia and Indonesia, the expansion of the world's largest service parts logistics network by adding over 100 new locations in China.

And just last month, a significant buildup of our global health care network, with new distribution centers in the U.S., Asia, Europe and Canada. While we were busy growing new business, 2010 was also a year of change and transition at UPS. The restructuring of the U.S. domestic business was one of the most significant in UPS history. We streamline the organization and introduced our localized go-to-market strategy. Although some of the benefits have been realized, the full impact will be more evident in 2011 and beyond.

In addition, we introduced a new global communications platform, along with an advertising campaign that highlights the power of logistics and the strength of UPS solutions.

Not only are we acknowledged for our expertise in enabling global trade, but once again, UPS was distinguished for its leadership in community, diversity and environmental sustainability. For example, UPS's employees were recognized for their continued support of the United Way, as the first company to surpass $1 billion in combined contributions. Our company received the number one industry ranking by the climate count score card for the second consecutive year.

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