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Original Source: FD (FAIR DISCLOSURE) WIRE
. Teresa Finley, UPS, VP, IR . Mike Eskew, UPS, Chairman, CEO . Scott Davis, UPS, CFO . Jordan Alliger, Deutsche Bank, Analyst . Tom Wadewitz, JPMorgan, Analyst . William Greene, Morgan Stanley, Analyst . Jon Langenfeld, Robert W. Baird, Analyst . Edward Wolfe, Bear Stearns, Analyst . Ken Hoexter, Merrill Lynch, Analyst . Scott Flower, Banc of America Securities, Analyst . Jason Seidl, Credit Suisse, Analyst . David Ross, Stifel Nicolaus, Analyst . David Campbell, Thompson Davis & Co., Analyst . Andy Chu, Credit Suisse, Analyst . Michael Beard, Bear Stearns, Analyst . Adam Thalhimer, BB&T Capital Markets, Analyst
Management reported 1Q07 profit of $440m. 1Q07 EPS (excluding charges) was $0.96 and including charges was $0.78. Expects 2Q07 EPS to be $1.00-1.05.
A. Key Data From Call 1. 1Q07 profit = $440m. 2. 1Q07 diluted EPS (excluding charges) = $0.96. 3. 1Q07 CapEx = $675m. 4. Cash and investments at 1Q07-end = $2.4b. 5. 1Q07 share repurchases = over 8.9m. 6. 2Q07 EPS guidance = $1.00-1.05.
S1. Impairment Charges (T.F.) 1. Details: 1. There were two charges Co. took in 1Q07 that affected operating profit and income before taxes. 1. An impairment charge of $221m on Boeing 727 and 747 aircraft and related engines and parts, due to the acceleration of
the planned retirement of these aircraft. 1. $159m of this charge applied to the US Domestic Package segment, and $62m applied to the International Package segment. 2. A $68m charge to expense related to special voluntary separation opportunity offered in 4Q06 to 640 employees in non-operating functions. 1. 195 employees accepted the offer. 2. The charge reflected the cash payout, stock compensation,
and certain retiree healthcare benefits. 3. $53m was charged to US Domestic Package segment. 4. $7m to International Package segment. 5. $8m to Supply Chain and Freight segment. 6. The after-tax impact of these charges was $184m or $0.18 per share, resulting in EPS of $0.78. 7. Without these charges diluted EPS was $0.96 vs. $0.89 one year ago.
S2. Opening Comments (M.E.) 1. 1Q07 Highlights: 1. Global small package business was fueled by strong growth outside the US.
2. International operation performed well posting a 10% increase
in export volume led by excellent growth out of Asia and
Europe. 3. Saw progress in Supply Chain and Freight segment, with the second consecutive qtr. of improved performance.
4. In the US, the slowing economy created challenges for small
package volume growth. 1. Globalization is accelerating and borders are no longer the impediment to businesses they once were. 2. More and more products are being designed in one country.
3. Sourced for raw material in another and manufactured in yet
another country. 4. Customers continue to migrate toward direct to consumer distribution models. 5. Supply chains are longer and more complex. 6. Co.'s strategy is to reduce this complexity for customers by offering a comprehensive portfolio of services and
technology solutions. 7. How Co. executes against this strategy is once again evident in 1Q07 as it offered important new capabilities to customers. 8. Leveraging the advantage of integrated network and technology to both differentiate and extend product portfolio.
9. In March, Co. rolled out a new service called Delivery Intercept, which epitomizes this approach to product development. 1. Enables a shipper to reroute the package already underway to an alternative delivery destination, and is the industry's only Web-based automated interception service and is made possible by Co.'s package flow technology. 2. Capturing new volume because of this feature. 5. During 1Q07, Co. unveiled global technology enhancements to shipping and billing systems that added freight functionality.
1. Customers now have the same ease of shipping, visibility and billing for their freight as they have had for small package shipments and all at the same place. 2. These enhancements expand value proposition and enables Co.'s sales teams to position a seamless portfolio to customers. 2. China: 1. UPS is committed to be the premier package delivery and logistics provider for China.
1. To that end, Co. has been aggressively investing in its wholly-owned operations in China. 2. Two weeks ago, UPS signed an agreement with the government of China that opens the way for construction of an International Air Hub at Pudong Airport in Shanghai. 1. UPS is the first US airline to qualify for hub status under a US-China air services agreement signed in 2004. 2. Co.'s objective in gaining this status is to capitalize on operational flexibility.
3. One of the key rights is having unlimited frequencies between the US and Shanghai and the ability to move beyond Shanghai to other points in China. 4. Invested approx. $600m in China over the last five years. 5. The construction of the Shanghai hub is yet another major step in Co.'s effort to enable global commerce for
S3. 1Q07 Financial Results (S.C.) 1. Highlights: 1. EPS of almost 8% is solid performance in today's business environment. 2. Consolidated operating margin was a healthy 13.8%, increase of
30 BP despite flat volume growth in the US domestic business.
3. Strong results from the international segment reflect the
strength of balanced global network. 2. US Market: 1. Economy slowed more than anticipated three months ago. 2. Mfg. inventory to sales ratio was at its highest level since 2003. 3. Business investment or capital goods orders continued a sharp decline, which began last summer. 4. Rate of growth in retail sales moderated substantially in 1Q07. 5. These trends were evident in UPS business, with slowing growth in B2B and B2C segments. 6. 1Q07 was somewhat of an anomaly in that the small package market appeared to underperform the overall economy. 1. …