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 third quarter 2015 earnings conference call. All lines have been placed on mute to prevent any background noise and after the speakers' remarks there will be a question-and-answer period. Please note, we will take only one question from each participant to accommodate more analysts during the call. Thank you for your cooperation. It is now my pleasure to turn the floor over to your host, Mr. Joe Wilkins, Investor Relations Officer. Sir, the floor is yours.

Good morning and welcome to the UPS third quarter 2015 earnings call. Joining me today are David Abney, our CEO, Richard Peretz, our CFO, along with International President, Jim Barber, President of U.S. Operations, Myron Gray and Chief Commercial Officer, Alan Gershenhorn. Before we begin, I want to review the Safe Harbor language. Some of the comments we will make today are forward-looking statements that address our expectations for the future performance or results of operations of the company. These statements are subject to risks and uncertainties, which are described in detail in our 2014 Form 10-K and 2015 10-Qs. These reports are available on the UPS Investor Relations website and from the Securities and Exchange Commission. In our remarks today, all full year comments and comparisons will refer to 2014 adjusted results. In addition, we will discuss UPS' free cash flow which is a non-GAAP financial measure. In mid-August UPS closed on it's acquisition of Coyote Logistics. For the remainder of 2015, the business results of Coyote will be reported in the Supply Chain & Freight segment. Revenue will be included in the Forwarding & Logistics unit on our web schedules. The webcast of today's call along with a reconciliation of non-GAAP financial measures are available on the UPS Investor Relations website. And just as a reminder, please ask only one question, so that we may allow as many as possible to participate. Thanks for your cooperation. Now, I would like to turn the call over to David.

Thanks, Joe. Good morning, everyone. UPS continued its positive momentum with the third consecutive quarter of improved growth in earnings per share. This is consistent with the outlook we provided during our Q2 call. During the third quarter our International segment, again produced double-digit growth in operating profits. The U.S. Domestic and Supply Chain & Freight units performed as planned. We are pleased with the results this quarter, especially given the uneven global economy. We remain on track to achieve the higher end of our full-year earnings per share guidance. Looking closer at the global economy. GDP growth in the U.S. has remained relatively unchanged. E-commerce has continued to expand, but the strong dollar has contributed to lower industrial production growth and softer exports. Global GDP forecast for the second half of the year have come down in leading European markets, including Germany, Poland and the U.K. Asia has also come down slightly, primarily influenced by lower China output. In other global trade developments during the quarter, we were encouraged that an agreement was reached on The Trans-Pacific Partnership, an accord that is expected to establish the rules of 21st century trade. In the U.S., it now awaits congressional review and approval. We expect the agreement to cut the customs red tape and allow faster clearance of shipments. TPP should also create a more level playing field for private companies when competing with government supported entities. Additionally, tariff cuts and transparency measures will provide benefits to companies on both sides of the Pacific. We continue to promote TPP with Congress to help ensure that many benefits of the agreement are fully understood. Our key strategies have positions us well to help UPS customers, especially small and midsize companies as they and we capitalize on expanded global trade and other new…

Thanks, David and I welcome the opportunity to update you on our global peak season plans and expectations. The growth of online shopping and returns continues to redefine peak season at UPS and this year between Thanksgiving and New Year's, we expect to complete about 10% more deliveries compared to the same period last year. And then on our planned peak day, December 22, we are scheduled to deliver about 36 million packages worldwide more, than twice a typical day. Now looking at the market, the National Retail Federation expects holiday retail sales to increase 3.7% and online sales are forecast to rise between 6% and 8%, similar to last year, but still very strong growth. As David just mentioned, we have broadened our strategy for peak this year and these actions are producing year-round benefits. And UPS focusing right now on three areas, both to improve customer experience and also the financial results of our business. We collaborating with customers to align our capacity with their needs. We are installing world-class technology solutions and we are also implementing selective pricing initiatives. Our first area of focus is to continue to deepen collaboration with customers by jointly developing operating plans that provide the capacity and service levels they expect. And to support our customers' need for flexibility, we will again employ our control tower this year. The primary goal is to optimize the network capacity by providing creative solutions to our customers' unique requests. This allows UPS to further say yes to our customers. In addition, customers have more options this year, including increased adoption of omni-channel distribution and the use of our expanded access point solution. In fact, about 60% of retailers will have an omni-channel strategy deployed this peak. At the same time, UPS will have 8,000 access…

Thanks, Alan and good morning. Our business units continue to execute well and our third quarter performance delivered solid operating results. Reported revenue was slightly low in the third quarter. Topline revenue growth was reduced by about $700 million as a result of the year-over-year currency and fuel surcharge changes. The International segment generated double digit profit growth for the third consecutive quarter of the year. And the U.S. Domestic and Supply Chain & Freight segments continue to perform as expected. Overall UPS generated earnings per share of $1.39, an increase of 5.3%. Let's move to the segment details. Starting with the U.S. Domestic business, where revenue increased 1.9%. Fuel surcharges lowered total reported revenue by about 250 basis points or $200 million. Strong base rates were offset by fuel surcharges and changes in product and customer mix. Average revenue per package was essentially flat to last year. Customers continue to choose our air services with elevated demand for deferred air products up over 13% and Next Day Air up 4%. In the U.S., ground volume slowed this quarter. Overall daily package volume increased slightly. The pace of B2C growth increased in the third quarter and offset the declines in B2B shipments. Additionally tough comparisons to last year combined with a softening macro environment have muted growth. Operating profit was in line with expectations, but down slightly to last year. Results were affected by higher pension expense and a slight drag from fuel. Operating margins came in at 14.2%. Let's move to the International segment. And we have some good news here. I am pleased to say our momentum continues. We set new highs in the third quarter operating profit increasing to more than 10%. These results demonstrate our ability to adapt in a shifting global economy. Revenue on a…

[Operator Instructions]. Our first question will come from the line of Ken Hoexter of Merrill Lynch. Please go ahead.

Great. Good morning. I would like to just follow up on the outlook for a moment. Your EPS jumps from mid-single digits to the low-teens in the fourth quarter, if we take the top-end of your range. But you noted U.S. volume growth is going to be 4% to 5% next quarter after ground volume declined for the first time in 16 or 18 quarters or so. Can you maybe talk about what's in the expectation? What you see in the market? Is that just driven by B2C outpacing the B2B? Or do you expect a pickup in the company? Just want to understand what's built into our outlook.

Sure, Ken. Good morning. This is Richard. When we look at where our guidance is, we look at both internal and external factors and obviously we have a mixed bag in the economy with the negative IP the last quarter and it doesn't look that's changing going into the fourth quarter. However at the same time, you have B2C that looks like it's going to have a solid quarter. E-commerce is still expected to be strong. And then when you look internally, we look at what we are doing, the preparation. We are making all the right moves. We have made the adjustments in our operations to calibrate the expectations and what our customers are expecting. We are working with customers to ensure that the volume comes in on the tons we are expecting the days of the week and we have aligned our revenue and cost. And so when you put all those factors together, we expect that our bottom line growth will come and that our company performance in the last three quarters will continue into the fourth quarter.

Thanks, Richard. I appreciate it.

We have a question from the line of Tom Wadewitz of UBS. Please go ahead.

Yes. I wondered if you could comment a little bit on, I know you are asked about the fourth quarter, but just maybe a broader comment on how you see the economy developing? Like did it get weaker within third quarter? Or it was kind of just stable at a lower level in terms of B2B? And do you think that that's going to continue to deteriorate? Or is it just a little bit of lower level in terms of, I think there are a couple of different areas where you saw a bit of a change, so obviously, Domestic B2B and then International export, I know you had yield management, but I guess those were the two areas in LTL where it seemed like there was additional weakness in the economy. So maybe a little more commentary to understand how that developed in the outlook on that? Thank you.

Okay. Good morning, Tom. This is David. And I am going to take the first part of this question and I will hand it over to Alan to talk a little bit from our customer base. But we have seen some softness in the U.S. economy and in the third quarter B2B faded a little bit and really we are just seeing mixed signals. And we are seeing growth from the consumer side. So B2B, especially online retail continues to outpace overall retail. But there is definitely softness in the manufacturing sectors. International production, as we talked about in the second quarter declined, in the third quarter we have seen acceleration of that decline. And we do estimate that IP is going to be negative in the fourth quarter. Part of that is the continued strength of the dollar certainly affecting exports and then there is just soft global demand, whether it be in China, Asia or wherever. So that's what we are seeing across the U.S. economy. Again, it's mixed. Alan, would you like to talk a little bit about the customer base?

Yes. Thanks, David. I guess, first like Rich said, we are seeing continual improvement in the B2C. So quarter-over-quarter, first quarter to third-quarter, our B2C results continued to improve in terms of volume growth and that's even with some tough comps from last year on some SurePost wins in the third quarter. We are also seeing very positive growth in our air products, Next Day Air grew 4%, our deferred products are growing double-digit, again, despite tougher year-over-year comps. So we think on the B2c side, for peak season that we are sitting really well in terms of what the growth projections are and we are going to finish the year in line with the volume expectations we set out at the beginning of the year.

Thanks.

A question from the line of Ben Hartford of Baird. Please go ahead.

Yes. Thanks. Good morning. Alan, maybe just continuing that point in the context of some of the weakness that you have seen domestically and globally during the third quarter. Domestic yields continued to be strongly. Obviously there is an effort here this year to recoup to drive yields higher. How confident are you that bias can continue, that we can continue to see strong yield growth, obviously not necessarily in the fourth quarter, but in 2016 if we do continue on this trajectory of soft economic growth domestically and globally?

Well, let me just say that first, our rate change for 2016 is in line with what we have done historically as well as in line with the market. So while we have implemented dim weight this year and we will be lapping that next year. We are confident that the value that we are creating for our customers along with ensuring they understand why we need to increase those prices based on the value in the solutions we are providing for them that we are expecting some strong yield results in the fourth quarter and into 2016.

And you know, we certainly have a focus on the yield. We have had all year, but just want to remind everyone that we are always looking for prudent balance between volume and yield. And of course the ultimate goal is to grow the long-term economic profit. Thank you.

And our next question is from Tom Kim of Goldman Sachs. Please go ahead.

Good morning and thanks for the time here. Now you have talked a lot about some very encouraging strategies around improving the peak season execution and the capacity and pricing initiatives are certainly well merited. I guess the one thing that wasn't entirely clear to me was your willingness to limit volumes around the peak season surge days. And I am wondering, to what extent are you going to walk away from business, should demand exceed your expectations and your customers? Thanks.

Yes. So like last year, we are going to be beefing up our control tower for peak season [ph] and that control tower is going to allow us to work together with our customers that maximize the value we provide and reduce the total cost. So the bottom line is, the idea here is to optimize the network capacity and its going to allow UPS to say yes, more to our customers for the unplanned volume.

Our next question will be from David Vernon of Bernstein. Please go ahead.

Hi. Good morning and thanks for taking the question. Maybe David or Richard, as you think about the longer-term outlook on the Domestic margin side, obviously we have seen a little bit of pressure now. We saw a bunch of implication cost. It feels little bit of a headwind. How confident are you that that we are at a point where the productivity initiatives and the better market discipline or better pricing in the Domestic segment is going to allow you to put a floor into that Domestic margin and avoid any further margin compression over the next couple years?

David, this is Richard. I will take it and then in a minute I will turn it over to Myron to talk a little about what's going on. We are making the improvements that we guided when we spoke last November. We talked about a multiyear process and we are making those improvements in our operations and at the same time we are balancing the alignment of cost and revenue together. And as we have done that, we have got ORION with 70% of our drivers this peak and so that will continue into 2016. We have the multiyear hub update and replacement that we will be doing. So putting all altogether, we are right in the line with where we expected we would be right now and we are working to the same plan that we covered with you guys just about a year ago. With that, I will turn it over to Myron to talk a little about what's going on operationally right now.

So this fourth quarter and moving forward, underlying factors to maintain good margin growth will be additional capacity, enhancing our customer experience and of course cost control. And I will start with cost control first. Richard just alluded to the continued deployment of technology in our field operations. And as he alluded to, we expect to have 70% of our drivers deployed on ORION this year and we will complete that by the end of 2016. And our progress to-date continues to show very good progress. We will also continue to modernize our hubs. We plan to fully automate our top Tier 1 hubs over the course of the next five years. And in addition to that, we will continue to deploy technology in our inside operations to help control cost as well. Alan has alluded to the deployment of access points. This year by the end of year we expect to have over 8,000 access points in the U.S., which helps us to improve delivery density, which also is a cost control measure, while at the same time enhance our customer experience. So we are very confident that moving forward we can continue to extract cost, improve the experience of our customers and have a good profit margin in the U.S.

Our next question will come from the line of Brandon Oglenski of Barclays. Please go ahead.

Hi. Good morning, everyone and thanks for taking my question here. So I want to come back to the fourth quarter because obviously there is a lot of implicit volatility built in here, just given the outcomes with peak. And David or Myron, I mean there is a lot of uncertainty heading into 4Q just with the economy and you even have some labor issues with your pilots. I know the Teamsters have talked about that as well. But let's just say that things are better or even worse, what's the flexibility on the cost structure right now with this peak season capacity? And are some of these things concerning where you are going to have flexibility to dial that back? Or is it pretty much locked-in at this point from a cost perspective?

So Brandon, let me start with your first question first. We are confident the negotiations will be completed with our pilots without any disruption to our customers, just as it has been in the previous four negotiations with our pilots. UPS and IPA our still bargaining in good faith at the table under the direction of the National Mediation Board. In that vein, it is not possible for a strike without the NMB's permission. And even if they were to give permission, it would only be given after exhausting a lengthy series of safeguards. And the next round of negotiations are already scheduled in November and December. In regards to cost containment in the fourth quarter, we are certain that we can adjust the network and be flexible enough to take the cost out. For example, while we have added capacity of 6% across the network, we will have 35% fewer sort days than last year. Even though we will have 44 additional sorts, we are able to accomplish that by starting the sort much later in the season than a year ago. Last year, the workday that we have with Black Friday operations, we felt like that the delivery network was underutilized and we are making the needed adjustments there. Our purchase transportation expense should be considerably less than a year ago based on our acquisition of Coyote. So we are also going to have improved production with our drivers. We are tightening up our dispatch. We will bring helpers on at the same rate as we did last year, but we are bringing them on much later and we will extend our drivers day to reduce overtime.

I would say, to just wrap up that question, we certainly have a good plan that we have worked on all year. We know there is going to be order books that are going to occur different conditions and we believe we have the flexibility to respond to those. Most of that flexibility is in this multipronged strategy that we have talked about. We have really been working hard with our customers collaborating. This control tower that you have heard us talk about is going to help us say yes and how to many customers on those last few days. So if we have customers that greatly exceed the amount of volume that they have committed to us, then we certainly would be willing to enforce cuts, but that's not our intention. Our intention is to work with customers on how we can move volume around and earlier days or take advantage of weekends. And then this increased technology that we keep adding is just going to give us a lot more flexibility, including our access points, putting ORION and the other things that you have talked about. The good thing about all of this is, it gives us year-round flexibility as well as helps us flex for peak. So we are confident that we have our plan and that we are going to execute to that point. Thank you.

Nate Brochmann of William Blair. Please go ahead.

Hi. Yes. Good morning. Thanks for taking the question. I found it interesting that we saw the pickup in the air business and I am assuming part of that is that some of those B2C customers are needing increased service levels which might be a little bit of shift away from everybody just worrying about the lowest price point. I was wondering if you are seeing a real trend there? And if that's an opportunity then longer term to gain market share away from some other potential vendors that can't offer that kind of same level of service.

Yes. Hi, Nate. Thanks for the question. This is Alan. Yes, we are in fact seeing strong growth in the Next Day Air and deferred products and it is driven largely by e-commerce and specifically in that area we believe we are gaining market share. And earlier, I think David, in his opening remarks, talked about the expansion of our time of day delivery commitments for Worldwide Express and we have done the same for Next Day Air and our Early A.M. and the Express Plus products and we have the leading coverage in the United States by time of day and certainly worldwide. And we are continuing to focus on being a leader in that area. Thanks.

A question from the line of Chris Wetherbee of Citi. Please go ahead.

Hi. Thanks. Good morning. I wanted to come back to some of the comments around peak and sort of the outlook for about 10% growth during the peak season, relative to Myron's comment about 6% capacity. I don't know if those are apples-to-apples sort of numbers but I just wanted to get a rough sense as to how you guys think about balancing that equation of growth relative to the existing capacity? I would have maybe expected those numbers to be a little bit closer but maybe there's something I am missing there. If you could give us some color that would be great.

Yes. This is Alan. I will take the first part of that and I will turn it over to Myron to speak good specifically about capacity. You have got to remember that we have one more day than last year to spread that volume out a little bit. And as far as the growth goes, again on the B2C side business, we are experiencing quarter-over-quarter growth in that regard. So we are pretty confident with what the projections are for e-commerce sales in the market and what our customers are telling us that we are going to be seeing that 10% volume growth between Thanksgiving and New Year's Eve. Myron?

So in addition to that, the 6% capacity is a network number, spanning our ground transportation as well as the air. So on the ground, we have concentrated 10 specific projects that encompass both automation, modernization or expansion of our facilities. We opened two brand new air sorts, one in Ontario, California, as well as one in Columbia, South Carolina. We added additional capacity in Dallas, Texas. If you will recall, last year we opened a brand new facility with 20,000 an hour capacity. That's since been expanded to 40,000 an hour. We modernized one of our hubs in Chicago, Illinois. In addition to that, when you look at WorldPort, where obviously is our air home, we have added additional capacity to increase our feeder only which is our long trailer unload capacity from 70,000 an hour to 100,000 an hour. And going back to Alan's opening statement, if you will recall, the retailers are expecting about 4% overall growth during the period. So we think we are fully covered.

Art Hatfield of Raymond James. Please go ahead.

Hi. Good morning. Thanks for my question. Just a quick question on the LTL segment. Can you elaborate on your comment about selective pricing initiatives? Is that you trying to push price higher within your book? Or are you seeing competitive actions by other people in the industry?

We are seeing great action being taken by everyone in the industry, but specifically for UPS Freight, we have worked to shed some unprofitable customers all year long. So we will continue to do that by focusing on the small package market, specifically as working very diligently with Coyote.

Scott Schneeberger of Oppenheimer. Please go ahead.

Thanks. Good morning. With regard to dimensional weight pricing, could you please elaborate on what benefit or revenue contribution you expect this year and how it's going to contribute from your conversation in the peak season? And just as a follow-on there, you mentioned larger packages getting priced higher too. Is that having any effect on your capacity? Thanks.

Yes. So we are still projecting our yields to be at the higher end of the 2% to 3%. We certainly came in that way in the third quarter. And we are expecting similar results for the remainder of the year. And it's really a combination of dim weight, the GRI and also selective pricing actions with customers. And certainly, we have noticed a uptick in the amount of large packages in our system and we are making sure that we are being compensated appropriately for the value that we are seeing with those packages.

A question from the line of Scott Group of Wolfe Research. Please go ahead.

Hi. Thanks. Good morning, guys. So I want go back to just the fourth-quarter guidance. So if I look at low double-digit operating income growth in the U.S., that implies pretty flat sequential earnings, at least U.S. package earnings from third quarter to fourth quarter. So we typically see a lot better than that outside of the past two years. So I guess my question is, do you feel like there's conservatism in that low double-digit guidance? Or is it that even with the changes that we have made for peak this year, something has changed and we are not expecting to see much sequential improvement in earnings from 3Q to 4Q anymore?

Scott, this is Richard. And first of all, when you think about our fourth quarter number, there is growth in all three segments, as we talked earlier. I think in my talk, I said that there is going to be double-digit growth in profit for all three segments of our business. And part of that is because we spent the last year working and our peak plans that Myron talked about and David and Alan this morning, but in the third quarter we also talked a little about the economy and what was going on with it. And we still feel that peak season will be strong because of the growth of e-commerce and that's reflected in the guidance and the guidance does have the total company actually growing double-digit growth in profits for the fourth quarter as well. Thank you.

Hi, Scott. It's David. When you talk about peak seasons of the past, you just have to remember that prior to this big growth in B2C e-commerce that our average peak day was increasing volume, somewhere around 50% over a typical day. Now with e-commerce, last year we approached 75% over. So the nature of the business has changed. We certainly see we are going to see big improvements over last year. But the relationship between third and fourth quarter has just migrated a little bit just over of this B2C growth. Thank you.

And Jeff Kauffman of Buckingham Research, please go ahead.

Thank you very much and congratulations. I want to follow up on Scott's question. Did I hear correctly that you said the package margins could be the strongest of the year in fourth quarter?

No. What I actually said was that our profit level will be the highest in the year in the fourth quarter.

Okay. So profit level. And then I just want to hit International margins. Now, normally the seasonal change is about 200, 250 basis points stronger fourth quarter versus third quarter on the International side which would imply a pretty big number on International margins. You did mention slowing in the global economy. Is it possible that you could be looking at kind of 18%, 19% margins on the International product? Or is there a reason why that normal seasonal margin difference would not happen?

So Jeff, if you look across the year, we have actually had about the same margins all year and we don't expect that to change. You know, at the end of the day, we are balancing our strategy around revenue management and growing the business. With what's going on around the globe and the economy and it is changing a little bit, but that's not really changing where we think we will be. And at the end of the day, the fourth quarter, we expect to be at the high-end of the guidance for what we have given on International.

Okay. And the impact to Coyote on SCS in the fourth quarter, is that going to show more as a benefit to the SCS margins or is that going to show more as a benefit to the package margins as you are going to be using them as a capacity source for the holidays this year?

Jeff, this is Joe. We are going to take jus the one question and then come back in. Okay?

Okay.

Thanks. One other thing too, just while I cut in here. Just so you know, at 9:20 today, there is going to be a peak season press release that goes out that summarizes what Alan just said, just so you are aware of that during the call, if the press release, it's not anything new. It's just a summary. So we will go into the next question. Thanks, Jeff.

Alex Vecchio of Morgan Stanley. Please go ahead.

Hi there. Good morning. Thanks for taking the question. So there's obviously been increasing reports out there recently about Amazon and their efforts to develop their own full-blown transportation network. So maybe David or Myron, you don't have to comment on Amazon specifically, but can you maybe talk to how you see the parcel competitive landscape evolving over the next few years? And how do you make sure that you are guarding against the potential outcome where your customers might increasingly become competitors?

This is Alan, Alex. Thanks for the question. Look, I think we have been successful because of our integrated network that creates the efficiencies and the value proposition. It's very difficult to match. And you have got to keep in mind, that that's from pickup through delivery, right, where we are almost making a million pickup today a day and obviously delivering millions of packages a day. And our customers are actually receiving the benefit of that scale efficiency of the integrated network. At the same time, we are cognizant of the competition out there as well as investing in new technologies to improve both service and efficiency. You are well aware of some of the things we are doing on the e-commerce side with UPS My Choice, UPS Access Point, UPS SurePost, UPS SurePost Redirect, our synchronized delivery service, i-parcel, so on and so forth. So we are continuing to monitor the space, but not only monitor the space, execute and continue to hone our offering to ensure it's the best in the business.

So the key to us is really just focusing on value to our customers. We have unmatched capabilities and systems and people. And if we stay focused on taking care of the needs of our customers and on providing that value, then we don't have to worry nearly as much about what the competitors are doing, because we are listening to our customers and focusing on that value. Thank you.

Allison Landry of Credit Suisse. Please go ahead.

Good morning. Thank you. I was wondering if you could talk about the recently announced third-party fees that are being imposed on retailers that are using the account of a larger entity to basically gain more favorable rates? Has this been an increasing trend you have seen amongst your smaller customer base over the last few years? And could you give us a sense of what percentage of your business that the surcharge applies to?

Yes. Allison, first, it is increasing amongst the customer base and it's a very valuable service that's in high demand and we certainly want to continuing offering that service and expand it with customers that use it today. And really no one out there provides a better third-party pickup service than UPS from the planning, implementation and the execution. And for shippers, what it does is, it can be very significant to them in terms of inventory handling and transportation savings associated with the service, as well as an ability for them to offer a broader line of products to both businesses and households consumers. So that's what we are really looking at out there with the third-party billing service. Thanks.

Rob Salmon of Deutsche Bank. Please go ahead.

H. Good morning and thanks for taking my question. If I could turn the discussion back a little bit to the cost side within the U.S. Domestic Package segment, clearly we have had two major changes as I am looking at the landscape. One is that rail services has improved quite a bit from a year ago and more so from two years ago and in addition you guys have got the now completed acquisition of Coyote. So if you could talk a little bit about what the optimal rail mix is as part of your purchase transportation network? What that looked like in 2013 and 2014? And provide some comments about how you see Coyote changing your truckload needs, whether it be from a pricing or from an optimal mix perspective for UPS? Thanks.

Okay. Thank you. First, I would say that when you start talking about, especially 2013, a little bit of 2014, our balance between rail and road did had to change and it had to change because the rails had serious operating problems. Part of it was too much volume, part of it was infrastructure. And we have always valued on the service that we can give our customers. That service started being threatened a little bit with the rail difficulties. So we put more on the road. And now we have seen that the rails have improved and they can provide the service that we need and when they do that, it makes it easier to put some of that business on the rails. And also with this acquisition that we just completed, that's one of the areas that Coyote can help us on, especially during peak when it comes to putting additional loads on the road. That's something that they can provide and help us decide the best company to use, the best agent, the best way to backfill. So we think it's one of the real value points that that they are bringing and it's one of the key synergy areas when we decided to do the deal. And the Coyote acquisition is going very well. It's according to plan. Our customers and employees are reacting very positive and we do believe they are going to help us make a difference during peak of this year. Thank you.

And we have a question from the line of David Ross of Stifel. Please go ahead.

Yes. Good morning, gentlemen. I wanted to talk about the Forwarding segment for a second. In the last call you mentioned the Trans-Pac airfreight market was pretty good and you saw some favorable buy rates. Did you see those buy rates remain in 3Q? And any commentary you can give around just Trans-Pac airfreight volumes would be great? Thank you.

Okay. David, it's Jim. A couple things, I guess, the quarter we just finished and kind of looking forward at the same time. What we saw in the third quarter was really just an expansion of the supply in the market. We saw it collectively globally going up about 4%. Demand is not keeping pace for that. Hence the market conditions that you just referenced. If you move into the fourth quarter, what we see is, it really depends on the lanes you are talking about. APAC to the U.S., we think will be strong. APAC to Europe, not so. Middle East will be strong. It certainly depends on the mix of the freight and where you have it relative to the question about supply and demand. But obviously the forwarding numbers for the third quarter as a business were very strong relative to our strategy. We will continue that in the fourth quarter.

Our next question will come from the line of Bascome Majors of Susquehanna. Please go ahead.

Yes. Thanks for taking my question here. A lot of questions on peak but looking beyond the peak into 2016, what critical variables are out there that could put you above or below your longer-term expected EPS growth rate of 9% to 13%? And generally speaking from where we sit today, do you think this range is going to be appropriate for next year?

Sure and this is Richard. When we look at our guidance and when we set our guidance for this year and last year when we talked about five years, the variables are obviously the economy and what's happening externally in the economy and at the same time, that's why there is a the range. At this point, given everything we are doing internally to create network efficiencies and manage and ensure that our cost and revenues are aligned properly as we see a structural change in some of the volume mix, we think the range is appropriate. We expect it will continue. And next quarter we will talk about 2016.

Our next question will come from the line of John Barnes of RBC Capital Markets. Please go ahead.

Hi. Good morning. Thanks for taking my question. Just with your commentary around the global outlook and some softness domestically and I recognize that the assets you are investing in are long-lived assets, but can you just talk a little bit about how you are balancing maybe the capital spending going forward based on what you are seeing? You have talked about the $1 billion of potential investment in Europe and just some of those dollars and how they are allocated given what you are painting as a pretty soft backdrop? Thanks.

Sure. John, this is Richard again. When we think about our investments, we are not thinking about what's happening in the next six months, but it's really what's going to happen for the next 10 years. And we are investing to continue to grow this business in the long term. And so when we are thinking about those assets, are they slight tweaks, yes. Year-to-year, we might make some decisions that are more ad hoc, but for the most part, it's a longer-term process. We started the year, I think closer to $3 billion as CapEx and I think right now we think it's closer to $2.8 billion for the year. That's a slight change, but that's not changing our reinvestment in automated buildings and making the network as efficient as possible because as we do that, we also bring down our operating costs. And so that helps our value proposition to our customers and we think that in the long run we will continue to keep investing to make sure that this business keeps growing strong and fast as we can get it to grow.

Due to time constraints, our last question will come from the line of Kelly Dougherty of Macquarie, followed by closing remarks from the panel. Please go ahead.

Good morning, guys. Thanks. Obviously Europe has been pretty strong for you guys. So I just wanted to talk about how you think about growth in Europe assuming FedEx, TNT goes ahead as expected? Does it change your game plan at all? Or maybe perhaps open up some additional opportunities for share gains between now and then? And then if you could comment maybe on what the pricing environment looks like in Europe? Obviously it's pretty stable in the U.S. but you hear at least some pockets of it maybe not being quite as rational over in Europe.

Okay. This is David. We have been in Europe almost 40 years and we continue see great opportunity there and we have been growing our business at a rapid rate and we continue to believe we will do so. Nothing has changed our strategy to invest and to grow and to grow at a pace exceeding the market rate. So yes, we are investing more than $2 billion in Europe which we announced last year and we are executing on that strategy. It's a lot about adding capacity. It's about modernizing our buildings. It's about implementing technology. All of the things that you would do if you got a very growing vibrant business. So we feel very comfortable about Europe. Jim, you want to follow up on a couple of things?

I think two points worth mentioning, Kelly. First, if you have seen the quarter, we just came through internationally, you saw the volume was down a little bit, but the revenue, when you clean it up for currency and fuel was up 3.8%. So that really speaks to the pricing environment and the rationality as far as we go to market. Obviously we have to do that in a competitive landscape, but we feel like we are doing that pretty well. And the other comment worth mentioning is, this quarter we just finished, you saw our strongest yield improvement in our Domestic product in over two years. So those two points for us tend to point to a market that we believe is really kind of in a balance growth market, but we believe we have to strike the right price to go to market and we will continue to do that. Thanks.

Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's panel, we would like to thank you for your participation in today's call. Thank you.

Steven?

Yes, sir.

We are going to have closing comments by David Abney.

All right. Please go ahead. Mr. Abney.

Thanks. David?

Okay. Well, first I would like to thank everyone for their interest in our company and for your questions. I just would like to emphasize that again this time our quarter was in line with our expectations. We felt good. This was a solid quarter. Year-to-date, all three quarters so far have been in line and we have either met or exceeded expectations. That momentum gives us confidence in peak season. We have good plans. We have the people to execute those plans and we have the discipline to do that. And once we do all those three things, then we will see a successful peak season and a successful fourth quarter. I would like to thank our people in advance, because I know they are going to make that happen and just look forward to the call in February. Thank you very much.