United Parcel Service, Inc. (UPS)

UPS 
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United Parcel Service (UPS)

Q2 2011 Earnings Call

July 26, 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

David Ross - Stifel, Nicolaus & Co., Inc.

John Barnes - RBC Capital Markets, LLC

Jeffrey Kauffman - Sterne Agee & Leach Inc.

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.

Benjamin Hartford - Robert W. Baird & Co. Incorporated

Christian Wetherbee - Citigroup Inc

Bill Greene - Morgan Stanley

David Vernon - Sanford C. Bernstein & Co., Inc.

Kevin Sterling - BB&T Capital Markets

Elliott Waller - Jefferies & Company, Inc.

Scott Group - Wolfe Trahan & Co.

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

Matthew Brooklier - Piper Jaffray Companies

Presentation

Operator

Good morning, ladies and gentlemen. My name is Steven, and I would like -- I will be your teleconference facilitator. At this time, I would like to welcome everyone to the UPS Investor Relations Second Quarter 2011 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to your host, UPS Treasurer and Vice President of Investor Relations, Mr. Andy Dolny. The floor is yours, sir.

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 expectations going forward. 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 risks and uncertainties, which are described in detail in our 2010 Form 10-K and first quarter 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 recorded a net gain of $33 million as a result of 2 non-recurring real estate transactions. This provided an after-tax benefit of $20 million or $0.02 per share. Excluding these transactions, diluted earnings per share for the second quarter were $1.05.

Although the overall impact is small compared to total earnings, we felt the adjustment was necessary to provide a better view of segment performance. In their remarks today, Scott and Kurt will refer to UPS's second quarter 2011 results excluding the impact of this gain. Additionally, all 2011 full year references and comparisons to 2010 will refer to adjusted results. We believe this is a more 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. These schedules are also available on the UPS Investor Relations website in the financial section.

Before I turn it over to Scott, I want to remind everyone of our Investor Conference on September 14 and 15 in Louisville, Kentucky. You should have received an e-mail recently informing you of the details. Attendees will be provided tours of UPS Small Package and Supply Chain facilities, as well as demonstrations of our industry-leading, operational and customer-facing technologies and solutions. There will be multiple opportunities for interaction with the management team and sufficient time for informal Q&A. Unlimited locker rooms at a discounted rate are available, so please visit UPS Investor Relations website to register. We look forward to seeing you there.

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

D. Davis

Thanks, Andy, and good morning, everyone. Today, UPS reported another quarter of impressive results, however, it was not without some difficulty, given the uneven nature of the global economy. While fuel prices have come down some and Japan appears to be recovering, high unemployment and weak consumer confidence continue. The end of the second round of quantitative easing and the government debt issues only add to the uncertainty. 2011 has been a difficult year to forecast economic growth. For example, according to the Wall Street Journal, back in February, in the middle of the quarter, 51 leading economies expected first quarter U.S. GDP to grow 3.6%. And as you know, it ended up at only 1.9%.

The current forecast call for second half GDP growth of more than 3%. Given all the uncertainty that exists in the U.S. economy, it could end up being anywhere from 1.5% to 3.5%. Bottom line, economic growth expectations have slowed from where they were at the start of 2011. And as I said last quarter, the increasing U.S. exports is a key component in creating jobs here at home and helping our economy grow. I'm hopeful the Congress will act soon on the pending trade agreements with South Korea, Colombia and Panama. But clearly, they are not acting fast enough. I can assure you that UPS is not sitting back waiting for the economy or trade agreements to keep us growing. We are creating our own opportunities to ensure that UPS keeps moving in the right direction. For example, in June, UPS held the Sixth Annual Healthcare Forum. More than 85 senior-level healthcare executives from 60 companies attended the Washington, D.C. event to discuss key supply chain issues and opportunities. Events like these give us insight into the challenges and opportunities in the industry. We continue to invest in expansion of our healthcare capabilities.

Last month, UPS made a significant announcement in this space, the global broadening of a relationship with Merck. We have been working closely, developing a deep understanding of their needs and have a strong network in place to support them. The relationship with Merck will expand to include Europe, Asia and Latin America. UPS will provide a broad range of services, including distribution, warehousing and transportation. UPS's industry-leading technology, unmatched breadth of solutions and strong global presence were some of the many factors that allowed us to win this business.

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