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We continue our Return to Growth series of Gartner Fellow interviews with this discussion with UPS CFO Kurt Kuehn. From his extraordinarily unique perspective, Kuehn offers his views on when the business climate will improve. Interview conducted by Ken McGee
Ken McGee (Gartner): What are your views on when overall business growth will return? Kurt Kuehn: I'm not a huge proponent that we're going to be entering any significant growth phase. I believe this is going to be a slow, slightly frustrating return-to-growth period, especially in the U.S. But now, my current best guess is that the worst is over. We're going to see some fits and starts and some positives, but it's going to take us a couple of years for the consumers to catch up. And so, if anything, we're in this purgatory for a couple of years – not terrible, but also not one in which you can set your sails and put out your spinnaker and ride the prevailing winds. So it's an interesting time, where there's certainly opportunity, but it's also one where, at the same time, you've got to be pretty prudent. Gartner: Do you view UPS as a leading indicator of a recovering economy? Kuehn: Not super strong. We're really a great coincidental indicator, probably one of the best. The Federal Reserve still gives us a call before their Federal Open Market Committee meetings, because our data is real time, it's as broad a cross-section of the economy — Gartner: The Fed calls you? Kuehn: Yes, because we move probably 7% of the GDP in our small package network. So that's a great coincidental indication. We pick up from a million and a half businesses in the U.S. every day, so that's as good a pulse as you can get. Gartner: When would you reasonably expect worldwide revenues here at UPS to return to the levels reached in 2007? Kuehn: I think it's going to be a couple of years. Gartner: Do you think it's more than three years? Kuehn: No, I don't. We've seen probably 10% declines, so no, I think probably a couple of years. Maybe toward late 2011 we'll get back to that area. Gartner: Can you get back to those revenue levels by 2011, without a profound return by the consumers? Kuehn: No, it's just – directly, our business to consumer is about a third of our business, and then indirectly, of course, the consumers. So no, it's going to take a stabilization of the consumers and some increase in demand. Gartner: How do you see your company sales changing in the next six months? Increase, decrease or remain the same? Kuehn: I think increase, modestly. The worst is over. But we do assume the real sequential improvements will be moderate. The year-over-year [comparisons] get pretty easy [to surpass] so it depends on which way you measure this. Gartner: Do you have concerns about a return back to negative growth, and if so, how serious are those concerns? Kuehn: I think there's a risk of stagnation more than a big negative decline. I think that, even as the stimulus has kicked in, that'll wear off… adrenaline only lasts so long. I think businesses are getting a little healthier, and certainly the financial markets are healthier. But then when there's no consumer growth – I think that'll be the area where you'll be in stagnation. The issue of underemployment, I think, is a big risk. Gartner: You topped out at 428,000 employees two years ago. As of last year, you reported having 425,000 employees. What do you think will occur in the next six months with regard to employment here? Kuehn: I think probably moderate reductions on the management side and probably stable on the hourly wage side. So we're not looking at increasing hiring; we're still trying to harvest all the good ideas. Gartner: What conditions would UPS senior executives need to see here before increasing employment? Kuehn: Yeah, for us, employment is a lagging indicator. We don't have a lot of intensive development work prior to a product. So for us, employment is a lagging indicator. So it would just be consistent demand. Since we're not a product development company, we don't manufacture and we're service real-time, the lead is not big. Sometimes, for assets, it's a little bigger deal, so that's the riskier issue – that we buy 10 more aircraft. Just to have more confidence, we're going to have to, I think, in the U.S. see this balance of both consumer and business progress. Right now, I feel better about where businesses are at than I do where the consumers are at. We've made some substantial reductions in capital spending. I see it holding relatively steady. Maybe there will be a slight increase during the next six months, but nothing serious. Part of that is just due to where we're at in the cycle of replenishment. Our aircraft is our single biggest investment; we're in good shape there. We are looking to bring out a next generation of our electronic clipboard, so that will happen, but that's less related to the economic cycle than it is the life cycle of required equipment. Gartner: Are there unique actions that a CFO has to take to maximize opportunities during these hopefully improving economic times? For example, are you looking for opportunities to buy companies during this time? Kuehn: Yes, especially outside the U.S. In the U.S., we've got a very strong footprint. We may do some selective acquisitions inside the U.S. Outside the U.S., the opportunity we see is that valuations are much more attractive these days and that, as a strong company, it's rational to continue to acquire when things are cheap. So we have continued to be busy with a lot of acquisitions, filling out our global footprint. My role is to highlight the opportunity and [to say], "Don't get scared during tough times; get aggressive." So I'm making sure we continue to look and balance that issue, that the best time to buy is when things are bad. So that's ongoing. So we haven't done a lot of headline stuff, but we have actually done more small global acquisitions in the last year than we've done pretty much in any other period. They just haven't been big home run deals. We've also been buying real estate. We've actually been buying out our leases in some cases. Gartner: In America? Elsewhere? Kuehn: Everywhere. It's being opportunistic, where you've got a landlord who could use some cash. So I was basically a little schizophrenic. I was sitting at the table telling people we've got no money, and then I'm whispering in the ear of some of my people, "But, if there's a bargain or if there's something we should be doing, we've got enough cash as long as it's a huge value." Gartner: What are some emerging trends that concern you? Kuehn: I think, globally, the whole issue of free trade is picking up a little bit. So we watch real closely what's going on with the balance of trade, and to some extent, companies have hunkered down a little bit. We worry a lot about the Buy American stuff and protectionism, so we're watching that very carefully. We should have trucks moving across the border in the South. There are restrictions on what we can do in Mexico because of that. As tariffs get thrown up, that basically stops the flow of goods across the border. Also, most growth in China is domestic. So nothing's coming out of China; they're not growing that way, but they are generating domestic stimulus. So that has a huge impact for how we invest, whether it's going to be as an enabler of global trade or whether it's a domestic environment. So that's a big index that we watch. Gartner: Does that mean that you're trying to cultivate intra-China activity? Kuehn: Certainly stuff that we watch and work on. We've just got to figure out where that's prudent. Gartner: What information do CFOs and CEOs of Global 2000 companies need every day? Kuehn: We don't all need information every single day. We're hooked on it because there is so much, so there's a big risk of getting distracted by it. I think CEOs need to have information on an ongoing basis about what's happening with their customers, so they've got an ear to the market constantly. They need information about major things that their competitors are doing – awareness about moves or trends. Gartner: But do you think that there's information on a daily basis, each and every day, information that makes you, Kurt, do something? Get up, pick up the phone, walk down the hall, get on a plane. How much of that occurs on a day-by-day basis rather than, oh, thank you, FYI? Kuehn: No, other than maybe some market issues if we're looking to do hedging of commodities or some of those things. So there's a piece, purely functional on my side, where, if we're in and out of the market, doing debt issuance or commodity purchases, then there's some benefit to being obsessive on tracking that. I guess to me the issue is more, "Is it possible in today's information overload to step back from that?" And I'm not sure what the right answer is. Gartner: For you personally then, what are those top two or three things that you would want to know that would literally propel you into action, no matter how big or small the action. Kuehn: Major changes or breaks in some of the major commodities we consume would be important. For example, petroleum. Oil moves dramatically; currencies move dramatically. Also, major customer events, top 50 customers, if there's any major wins or losses, or something's happened with those. Yeah, actually, even though I'm not very good with my answers on that, I think that is an important area. So I think the technology's gotten so far ahead of our human capacity these days, and we really don't know now as managers how to balance that information overload. I guarantee you, though, that we will have an answer. Gartner: Final question: Do you think we'll see a day when earnings are announced by public companies more frequently than quarterly? Kuehn: Boy, I hope not. Gartner: Why is that? Kuehn: It would be destructive. Gartner: In what way? Kuehn: The process of announcing earnings takes interpretation and takes preparation. It's already a big time commitment, taking a couple of weeks per quarter for that activity. It's bad enough – and also, every time you report, there's judgments – some very easy and some not so easy. Gartner: So, are there gaps in that information gathering? You said you sit through 15 meetings to prepare to tell the UPS earnings story. Are there gaps that, if they could be accelerated and challenges overcome, you could get that story crafted faster than you've ever contemplated? Kuehn: It could be, but as I started off, I don't see speed as being the goal. I see the goal as quality in insights, and one of the reasons I allow myself to go to that many meetings is it's a way for me, at least once a quarter, to ponder the direction and the issues of the various business units. It's a great opportunity and a great excuse for me to sit back and, in the process of creating an external message, update my internal compass.  |
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