United Parcel Service, Inc.

Good morning. My name is Steven, and I will be your conference facilitator for today. At this time, I would like to welcome everyone to the UPS Investor Relations fourth quarter 2018 earnings conference call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer period. It is now my pleasure to turn the floor over to your host, Mr. Scott Childress, Investor Relations Officer. Sir, the floor is yours.

Good morning and welcome to the UPS fourth quarter 2018 earnings call. Joining me today are David Abney, our CEO, Richard Peretz, our CFO, along with Chief Operating Officer Jim Barber, Kate Gutman, our Chief Sales and Solutions Officer, our Chief Information and Engineering Officer Juan Perez, and Scott Price, our Chief Strategy and Transformation Officer. Before we begin, I want to review the Safe Harbor language. Some of the comments we'll make today are forward-looking statements and address our expectations for the future performance or results of operation of our company. These statements are subject to risk and uncertainties, which are described in detail in our 2017 Form 10-K and other reports filed with the Securities and Exchange Commission. These reports are available on the UPS Investor Relations website and from the SEC. During the quarter, UPS recorded a non-cash after-tax mark-to-market pension charge of $1.2 billion. The charge includes the effects from lower-than-anticipated asset returns partially offset by higher discount rates. It also includes a partial liability from the performance of the central state's pension fund. In the prior year period, UPS recorded a non-cash after-tax mark-to-market pension charge of $607 million. The charge resulted from lower discount rates partially offset by higher asset returns. Also in 2017, we recorded a one-time income tax benefit of $258 million due to the adoption of new tax legislation. More details on the mark-to-market accounting will be available in a presentation on the Investor Relations website later today. GAAP diluted earnings per share for the fourth quarter 2018 was 52 cents. Adjusting for the impact of the mark-to-market pension charge, earnings per share for the quarter was $1.94. Fourth quarter 2017, GAAP diluted earnings per share was $1.26, and adjusted earnings per share was $1.66. Unless stated otherwise, discussions today will refer to adjusted results. The webcast of today's call, along with the reconciliation of non-GAAP financial measures, are available on the UPS Investor Relations website. Webcast users can submit live questions during today's call. We will attempt to answer questions of a long-term strategic nature. Callers are asked to submit only one question so that we may allow as many as possible to participate. Thank you, and now I'll turn the call over to David.

Thanks, Scott. I welcome this opportunity to share our positive fourth quarter results and our plans for continued improvement throughout 2019. On today's call, I'll share highlights for the quarter, our transformation progress, and our views on the macro business environment. Jim Barber will discuss our peak and Q4 results and our drive to improve operating leverage. Richard will then review the financial details of the quarter and 2019 outlook. First, I want to take a moment to applaud the nearly 500,000 UPSers who completed a successful peak season. Thanks to their hard work and commitment, we delivered industry-leading on-time service and solid earnings growth. We also thank our customers as we work together for our mutual advantage by optimizing UPS's network utilization to ensure reliable service to their customers. During peak, we produced good volume and revenue gains, as well as orchestrated improved revenue quality. But most important, we effectively managed the total network and drove productivity improvements while processing high peak volume levels. As a result, we successfully delivered on our consolidated financial targets for earnings growth. We realized the benefit of several transformation initiatives, including strong SMB growth and yield management and the highest B2B growth in several quarters. For the total company, we lifted revenue by 5.2% on a currency-neutral basis, generated solid operating margins, had excellent free cash flow, and in 2018, rewarded shareholders with $4.2 billion in dividends and share buybacks. I'm pleased with the improvements we've made across the company and with our strong Q4 EPF script of 17% to $1.94. Our domestic business performed as planned, successfully processing the record volume that came into our network. International grew both top line and bottom line in a changing economic environment, while supply chain and freight delivered strong results in the forwarding, logistics, and coyote units. UPS remains the industry leader by identifying and capturing opportunities, managing macro risk, and delivering results that support our customers and reward share owners. Beyond the strengths of the UPS business model, our transformation will deliver even better performance in the future. At our conference last September, We outlined a three-pronged strategic approach to transformation. We've made great progress, and in a few moments, Jim will provide an update. You will hear that we have generated higher quality revenue growth, greater efficiency to improve operating leverage, and actions to shift our culture to greater urgency and continuous transformation. As mentioned in my discussion on PEAK, we're realizing the benefits of transformation in our financial results. We remain committed to elevating EPS by an incremental dollar to $1.20 by 2022. We began our transformation in late 2017, and by doing so, we put UPS on a structured path to enhance performance, future-proof the company, and take advantage of growth opportunities. Looking ahead to 2019, external forecasts are calling for somewhat softer export in GDP growth across major economies due to uncertainty over trade policy. Our diverse portfolio, global revenue base, and flexible network help to buffer the potential impact of these factors for UPS and our customers. We continue to see growth opportunities in targeted business segments and in markets where we're well positioned to accelerate local domestic and cross-border trade. I recently met with industry and government leaders at the World Economic Forum. While both economic headwinds and tailwinds were discussed, I left more convinced than ever that we're on the right track. Investments in our strategic growth imperatives especially to support SMBs, along with our network automation, will enable profitable UPS growth. These actions will ensure our success today and well into the future. As we look forward to 2019 and beyond, UPS is uniquely positioned to deliver long-term value creation for customers and shareholders. Our 2019 guidance demonstrates the early results of our multi-year actions to improve leverage in our domestic business. Before I close, I want to welcome Philippe Gilbert to my leadership team. Philippe was recently appointed President of UPS Supply Chain Solutions and is a member of the Management Committee. He has extensive global industry experience and will lead the next phase of growth and operating improvements across our supply chain and freight business units. His appointment is another step in our transformation-focused realignment of the UPS Management Committee. In a little more than a year, six of 12 Management Committee members have been appointed to new positions, including three members who have joined us from other companies. We are enhancing our culture and transformation by blending internal and external leadership talent. This approach is adding new perspectives and taking advantage of our broader experiences. Now, Jim will take you through details on PEAK, the actions driving revenue and revenue quality, greater operating efficiency, and our evolving culture. Jim.