UPS Earnings Call Nuggets: Domestic Mix, Asia Uptick

On Tuesday, United Parcel Service Inc (NYSE:UPS) Class B (NYSE:UPS) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Domestic Mix

Thomas Wadewitz – JPMorgan: Congratulations on the good results, especially in international. It looks like strong performance. I wanted to ask you about the Domestic side and a couple of things going on with mix. Can you give us a sense of how much B2C was up and how much B2B was down? Then also I guess in terms of that topic, how would you look at margins going forward if you continue to see that trend of B2C growth and slower or modestly declining B2B?

Kurt Kuehn – CFO: Yeah, B2C has continued to show slight declines. So, it didn’t get significantly worse from Q2 to Q3, but clearly with some of the challenges in the industrial sector and some of those areas we are just not seeing a lot of strength there. So, B2C was absolutely the primary driver of the volume growth. As we’ve said, this is one of the big market changes that we’re adapting our business model to. So the B2C is a little more challenging, but as you have seen both the operational technology side and the consumer side, we are focusing enhancements to address that.

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D. Scott Davis – Chairman and CEO: Tom, our long-term targets on Domestic are 14% to 15% margins. 2014 to 2016, we are not backing off of those margins as we move forward.

Thomas Wadewitz – JPMorgan: Can you give the actual numbers what B2B and B2C were Kurt, or you don’t care to be that specific?

Kurt Kuehn – CFO: B2C was upper single-digits and B2B was slightly negative.

Asia Uptick

Christian Wetherbee – Citi: Maybe a question just on the international side. You mentioned the Asia outbound picking up a little bit. Just want to get a sense of what that was specifically around product launches maybe the sustainability of that and how we should think about that relative to capacity? Do we get a sense that you got to the right point of capacity relative to demand right now and how do you think about in the fourth quarter?

Kurt Kuehn – CFO: Right, yeah, it certainly was great to see Asia get into positive numbers again and I think it is a little bit of both of the issues that you mentioned. I’ll have Dan Brutto talk about that a little bit.

Daniel J. Brutto – President, UPS International: Sure. I guess, what I would say as far as the network cutbacks, certainly, we have done that, but I would also say that we’ve also added in aircraft. We just added our fifth gateway in China. It started the middle of September in Changzhou primarily for the high-tech sector and that kind of coincides with what’s going on in China, this whole go west strategy. So, you have got a lot of manufacturers now in China that are moving off the East Coast to West. Last year, we opened up another Gateway in Chengdu essentially for the high-tech, so we are moving our equipment where the customers are. Certainly it was good to see finally a small uptick in Asia this quarter.

D. Scott Davis – Chairman and CEO: We think this slow global trade is cyclical and it will come back. I think one of things we talk a lot about is the fiscal cliff in the U.S., if we resolve that and get the U.S. Economy consumer going again that will help demand I think, U.S. from Asia. So we see it coming back some next year.

A Closer Look: UPS Earnings Cheat Sheet>>