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When D. Scott Davis took the wheel as CEO of United Parcel Service in January 2008, no one knew that global commerce was about to go over a precipice. The company was moving about 15.5 million packages and documents a day, and Davis was busy figuring out how to accommodate brisk growth. By year-end the world was in deep recession, and Davis had to shift gears. He closed some facilities, cut about 10,000 jobs, froze management salaries and suspended the Atlanta-based company’s 401(k) match. Yet he also went on the offensive, bumping up UPS’s hybrid fleet to 2,200 vehicles, the most in the industry. He has continued to expand its hub and distribution centers, added 16 countries to UPS’s network of express pickup and delivery services and bought several small companies.

“There are some nice valuations to be had, our competitors are hamstrung by their balance sheets, and private equity isn’t as much of a factor,” Davis says. “This is no time to go into a cocoon.”

Unlike most companies, UPS typically taps a leader from among its senior execs, most of whom have been with UPS all their lives and at one time or another have handled packages. The 57-year-old Davis had been with the company for more than two decades when he was picked as CEO. But he was an outsider of sorts: Rather than working his way up internally, he joined UPS when it acquired the technology firm he was running, IIMorrow, in 1986. After holding several key positions, including the CFO job, Davis was promoted to vice chairman and then CEO.

Despite the recession, UPS remains the world’s largest package delivery company and has continued to ship goods that account for 6 percent of the U.S. economy and 2 percent of the global economy. But that has translated into fewer units as business has slowed. Second-quarter revenues were $10.83 billion, down almost 17 percent from the same period last year. Net income fell to $445 million, half of last year’s $873 million.

The stock price has not been immune, dropping 17 percent from Davis’s first day on the job through mid-September. Yet UPS’s shares lost less than did the S&P 500 index, which was down 27 percent, and have climbed 54 percent since the March 9 market low, just shy of the S&P 500’s rebound.

In a recent conversation with Institutional Investor Contributing Writer Claudia Deutsch, Davis explained why UPS is positioned to profit as the economy recovers.

Institutional Investor: Before the downturn your capital expenditures ran at 6 percent to 8 percent of revenue. This year they will be below 5 percent. How do you triage projects?

Davis: We’re pretty strategic about where we invest. It was very important to finish our international hub in Shanghai and to build an inter-Asia hub in Shenzhen, and to add two new wings to Worldport, our U.S. hub in Lexington, Kentucky. And we’re investing in companies that have useful technologies, like shipping software. But we’ve cut back at some regional hubs that do not handle international travel.

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