Original Source: FD (FAIR DISCLOSURE) WIRE
. Teresa Finlay, United Parcel Service, IR . Scott Davis, United Parcel Service, CFO . Tom Wadewitz, JP Morgan, Analyst . Jordan Alliger, Deutsche Bank, Analyst . Edward Wolfe, Bear Stearns, Analyst
. Mike Halloran, Robert W. Baird, Analyst . Ken Hoexter, Merrill Lynch, Analyst . Gary Chase, Lehman Brothers, Analyst . John Barnes, BB&T Capital Markets, Analyst . Scott Flower, Banc of America Securities, Analyst . Jason Seidl, Credit Suisse First Boston, Analyst . Helane Becker, Benchmark, Analyst . David Ross, Stifel Nicolaus, Analyst
. David Campbell, Thompson Davis, Analyst
Co. reported YTD, it generated almost $4.1b in cash from operations, YTD free cash flow is $2.7b, and paid $1.2b in dividends. 3Q06 EPS guidance is $0.87-0.91.
A. Key Data From Call 1. YTD capex = $1.4b 2. 2Q06 cash = $2.9b
3. 1H06 stock repurchases = 17.8m shares for $1.4b 4. 3Q06 EPS guidance = $0.87-0.91
S1. Financial Performance (S.D.) 1. 2Q06 Results Highlights: 1. Strong quarter despite higher fuel costs. 2. U.S. volume gains strong, robust small package market. 3. International package business showed good growth despite three fewer operating days in Europe.
4. Supply chain & Freight improved over 1Q results. 5. Cash position excellent. 2. 2Q Awards: 1. Named top business brand in American Brand Excellence awards for 2006. 2. Business Ethics and Black Enterprises magazines recognized co. for corporate citizenship and diversity. 3. EPA gave co. clean air excellence award in alternative fuel. 4. Sears named co. supplier and carrier of year. 1. Awards span different aspects of corporate life at UPS. 3. Operations: 1. U.S. small package volume up 4.7%, all products contributed. 2. Firm pricing, 2.7% increase in revenue per piece. 3. 10.4% increase in profitability, 7.5% revenue increase.
4. Operating margin 16.5%. 1. Third consecutive quarter operating margin improved. 5. Good quarter, results constrained by increased rail, healthcare, pension costs. 1. High fuel prices reduced profits. 2. Fuel surcharges lag real price changes by six weeks.
3. Operating profits negatively affected when fuel prices spike.
6. New contract to transport mail for USPS. 1. Three year agreement, co. will move first class and priority mail between almost 100 cities, optimizing aircraft use. 7. Tentative labor agreement with pilots association and starting Teamsters negotiations early. 1. IPA contract through 2011 will take until mid-Sept. to complete. 2. Will not disclose contract terms until all members contacted. 3. Will have no negative impact on results in 2006. 4. Teamsters negotiations open early, 200,000 employees,
current contract extends until July 31, 2008. 1. By starting early, can discuss complex issues important to both sides. 4. Small Package International: 1. Results seem disappointing, but performance in line. 2. Profit growth impacted by reduced operating days in Europe, three fewer than last year. 3. Six month performance, see typical UPS performance. 4. Revenue up over 14%, export volume up over 11%. 5. Profit up $809m for 1H06. 6. Operating margin 18.4%. 7. 2H06 expect to achieve stronger results with solid revenue
growth and margin expansion. 8. Revenue per piece declined due to same mix change seen in past few quarters. 1. Number of non-U.S. domestic packages increased substantially, with Canadian growth and acquisitions in Europe. 2. Average revenue per piece for non-U.S. domestic products is about $7 vs. $38 for total export.
3. Export business experiencing higher mix of European and North American trans-border products. 4. Non-U.S. domestic and trans-border products have lower revenue per piece but are quite profitable. 5. UPS small package business is powerful infrastructure with integrated network that supports global products and creates
solutions for customers 5. Supply Chain & Freight: 1. Increases in revenue and profit due to LTL acquisition, completed last August. 2. Forwarding and logistics business breakeven performance.
3. Revenue management and account profitability efforts producing
results. 1. Have work to do to win back business lost in 1Q. 4. Integration of air freight forwarding network completed on June 30. 1. Expect to achieve $50m in cost synergies in next six months. 5. UPS freight business focused on integrating technologies and enhancing service, improving time in transit.
6. UPS Freight is rebranding of former Overnight Freight,
transition into UPS continuing and proceeding smoothly. 6. Financial Position: 1. $2b authorized for ongoing stock repurchase program.
1. Since 2000 repurchased almost 150m shares. 2. 1H06 repurchased 17.8m shares. 2. YTD, generated almost $4.1b in cash from operations.
3. Spent $1.4b in capex. 4. Spent $1.4b to repurchase shares.
5. Paid dividends of $1.2b. 6. Ended 1H06 with $2.9b in cash.
7. YTD free cash flow is $2.7b. 7. Outlook: 1. 3Q06 EPS $0.87-0.91 vs. $0.86 a year ago. 1. One less operating day in 3Q than last year. 2. U.S. domestic business, one less day reduces profits by about $50m. 3. July 3 fell on Monday this year, will reduce operating profits by another $25m. 4. Will negatively impact EPS by $0.04-0.05 combined. 5. Increased costs will negatively impact bottom line. 2. Expect U.S. domestic profit growth minimal vs. 3Q05. 3. International business should improve. 4. Supply Chain & Freight should improve in 3Q. 5. Expect strong 4Q performance.
6. 2006 EPS growth at low end of 11-16% range originally set for
2006. 7. Had exciting and challenging six months transitioning four acquisitions into co., positioning …