United Parcel Service, Inc.

Good morning. My name is Steven, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the UPS Investor Relations fourth quarter 2019 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 2019 Earnings Call. Joining me today are David Abney, our CEO, Brian Newman, our CFO, Kate Gutman, our Chief Sales and Solutions Officer, along with International President Nando Cicerone, President of U.S. Operations George Willis, our Chief Information and Engineering Officer Juan Perez, and Scott Price, our Chief Strategy and Transformation Officer. Before we begin, I want to remind you that some of the comments we'll make today are forward-looking statements within the federal securities laws and address our expectations for the future performance or operating results of our company. These statements are subject to risk and uncertainty, which are described in detail in our 2018 Form 10-K and other reports filed with the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC. During the fourth quarter of 2019, U.S. GAAP results included a non-cash after-tax mark-to-market pension charge of $1.8 billion. an after-tax transformation charge of 39 million, and U.S. domestic after-tax legal contingency and expense charges of 91 million, predominantly related to the New York cigarette case. The after-tax total for all three items is $1.95 billion, an impact to fourth quarter 19 EPS of $2.23 per diluted share. The mark-to-market pension charge includes the effect of notably higher-than-anticipated asset returns and the unfavorable movement to lower discount rates. It also includes an updated estimate of potential benefits related to the central state's pension fund. In the prior year period, the company's GAAP results included a non-cash after-tax mark-to-market pension charge of $1.2 billion or $1.42 per diluted share. More details on the mark-to-market accounting will be available in a presentation posted to the Investor Relations website later today. Unless stated otherwise, discussion today referred to adjusted results. The webcast of today's call, along with a reconciliation of non-GAAP financial measures, are available on the UPS Investor Relations website. Webcast users can submit live questions during the 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.

Good morning, everyone. I'd like to welcome Nando and George to the call. They oversee our two largest segments, Each have deep knowledge of our business through more than 30 years of UPS experience. This morning, I'll share my thoughts about the fourth quarter and the year ahead. Brian will then review the financial details of the quarter and 2020 guidance. During the fourth quarter, we continue to successfully execute our strategies and deliver on our commitments, revenue growth, improved network efficiency to drive operating leverage, and continuous transformation to stay ahead of market changes. Our multi-year investment strategy is positioning us well to support the needs of our customers, generate profitable revenue growth, reward our shareholders, and create opportunities for our employees. I want to thank the 495,000 UPSers around the world for their efforts during peak. We delivered more than 1.6 billion packages in the fourth quarter, including a record level of residential packages. This exceeded our expectations and resulted in a near 8% increase in volume over last year. Also, we were recognized by third parties for providing industry-leading on-time service for this remarkably high peak volume. Our execution over the holidays benefited from increased capacity and automation throughout the network, effective use of proven tools and enhanced technology, and deeper collaboration with our customers to align volume with network capacity. Our operating teams took advantage of the 20 new aircraft and the additional 10 million square feet of automated capacity we added to our network in 2018 and 19, which enabled us to provide great service for our customers for the last two peak seasons. And many of the technologies and processes we employed during peak will carry forward to make our normal daily operations more efficient year round. For the company in the fourth quarter, revenue grew 3.6%, Operating profit was up nearly 14%, and margins expanded in all segments. As a result, fourth quarter adjusted EPS was $2.11, a nearly 9% increase over last year. We're continuing to focus on our strategic growth imperatives, SMBs, e-commerce, health care, and international growth markets. Our transformation strategies and investments anticipated the growing significance of global e-commerce and position UPS well to capture opportunities from all customers. We're embracing the e-commerce structural shift to faster delivery, which brought a surge in next-day air volume of more than 22% in 2019, an increase we were well equipped to handle with greater efficiency. Our investments drove productivity gains and lowered unit costs on a year-over-year basis, generating positive operating leverage in the fourth quarter and for the year. We also proved that our integrated network provides UPS and our customers tremendous flexibility to more efficiently respond to the fast pace of change in the market. Now, looking ahead to 2020, I just returned from the World Economic Forum in Davos, where discussions with customers and policy leaders reinforced our current outlook for this year. The 2020 economic backdrop will provide opportunities for UPS. Consumer demand remains healthy globally and in the U.S., and we're positioning solutions to grow commercial deliveries despite weakness in the industrial sector. Global GDP estimates call for slower growth than the first half of the year, with four-year growth at 2.5 percent, finishing about the same as last year, which is below what many consider a normal growth rate. On a positive note, advancements with U.S. trade are encouraging, with the President's recent signing of the USMCA and the US-China phase one trade agreement, an historic event I had the privilege to witness. Each is a big step in the right direction for global trade. Amid dynamic economic conditions and structural shifts in the market, UPS is taking aggressive steps forward by investing for growth, speeding up our network, and introducing new SMB-centric solutions that help them compete and grow. Our customers rely on speed to market as a competitive differentiator, and we believe there's additional growth opportunity for UPS as we accelerate our network and further broaden weekend operations. This year, we're significantly expanding extended hours pickup for next day ground to cover an industry-leading 98% of the U.S. population. We're also expanding weekend delivery services. For Saturday deliveries, we're bringing online more operations, doubling the amount of volume we handled in 2019 to reach an additional 40 million U.S. consumers. Plus, we remain the only integrated carrier that offers commercial and residential pickup and delivery on Saturday. We're initially launching Sunday delivery to the majority of the U.S. with an economy product and will expand throughout the year to provide our customers a wide range of delivery options covering all seven days of the week. We will also further expand our integrated network by adding more than 5 million square feet of new automated capacity. Most notably, we recently announced plans for a super hub in Harrisburg, Pennsylvania, unlocking opportunities in speeding up the network in the Midwest and Northeast corridor. We see tremendous opportunities, and we're taking advantage now by reinvesting a portion of our transformation savings to speed time in transit and introduce unique new products and services. These actions generate long-term revenue growth and enable further diversification among our growing SMB customer base. Yesterday, we announced several new solutions to continue to help our SMB customers. We're expanding My Choice for Business in 30 countries, and by the end of 2020, 96 percent of UPS's global small package volume will be eligible to be tracked and controlled through My Choice for Business. And we're enhancing UPS.com to simplify cross-border trade. The website will guide customers through estimating duties and taxes and determining customs requirements, making it easier for SMBs to ship internationally. We also introduced several next-generation technology expansion. Drone delivery service from UPS flight forward will soon begin at the University of California San Diego Health Campus. We will soon close on an equity investment in Arrival, a leading electric vehicle manufacturer, along with a commitment to purchase 10,000 advanced EV delivery vehicles. And we are deploying Dynamic Orion, continuously optimizing routing in the U.S., as we progress to make the fastest, most technology-enabled company in the industry. We have made great strides expanding and further automating our smart global logistics network and in creating new solutions to grow revenue. The impacts of our transformation are becoming more visible in our operating performance, even as we invest in new capabilities. All of the network investments and SMB initiatives we're discussing reinforce our confidence in achieving our transformation EPS commitment of $1 to $1.20. The decisions and investments we're making, especially with our SMB initiatives and pulling forward actions to speed up our network, will uniquely position UPS in the industry and are designed to ensure continued success well into the future. Now, Brian, we'll take you through our results.