United Parcel Service, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. UPS operates U.S. Domestic Package, International Package, and Supply Chain Solutions businesses. Figures below are in U.S. dollars; financial amounts are in billions unless noted.
Business context and key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $90.958 | $100.338 |
| Operating profit / margin | $9.141 / 10.0% | $13.094 / 13.0% |
| Net income | $6.708 | $11.548 |
| Diluted EPS | $7.80 | $13.20 |
| Operating cash flow | $10.238 | $14.104 |
| Capital expenditures | $5.158 | $4.769 |
Management-reported adjusted diluted EPS was $8.78, excluding specified items. Operating cash flow less capital expenditures was approximately $5.1 billion in 2023; this is a simple calculation, not a company-reported free-cash-flow measure. UPS delivered an average 22.29 million packages per operating day, down 8.2%; average revenue per piece rose 1.8% to $13.62.
Segment results: U.S. Domestic Package revenue was $59.958 billion and operating profit $5.076 billion; International Package revenue was $17.831 billion and operating profit $3.231 billion; Supply Chain Solutions revenue was $13.169 billion and operating profit $0.834 billion.
Liquidity, debt, and shareholder returns
- Cash, cash equivalents, restricted cash, and marketable securities totaled approximately $6.1 billion at year-end. Cash and cash equivalents alone were $3.206 billion.
- Total debt was $22.264 billion, including $2.172 billion of commercial paper. Debt and finance lease obligations classified as current totaled $3.348 billion. UPS had no balance outstanding on its revolving credit facilities and reported compliance with debt covenants.
- Dividends declared were $6.48 per share; cash dividends paid were $5.372 billion. UPS repurchased 12.8 million shares for $2.25 billion, but said it did not anticipate repurchases in 2024. A $1.63-per-share quarterly dividend was declared in January 2024.
Material changes versus 2022
- Revenue fell 9.3%, operating profit fell 30.2%, and net income fell 41.9%. Consolidated operating margin contracted by 3.0 percentage points.
- Lower package volumes, weaker forwarding markets, reduced fuel and demand surcharges, and volume diversion during Teamsters labor negotiations weighed on revenue. Average daily package volume fell across all three segments.
- Lower purchased transportation and fuel costs, along with productivity and cost actions, reduced expenses, but did not offset the revenue decline. New Teamsters contract wage and benefit increases began in 2023.
- Supply Chain Solutions revenue declined 19.9%, primarily from forwarding; logistics revenue increased 10.8%. U.S. Domestic Package and International Package revenue declined 6.6% and 9.5%, respectively.
Outlook, commentary, risks, and unusual items
- Management expects gradual improvement in global economic conditions and volume and revenue growth to increase in the second half of 2024. It anticipates relatively flat volume growth in the first half, with outcomes dependent on macroeconomic conditions.
- For 2024, UPS expects capital expenditures of approximately $4.5 billion, including more than $1.0 billion of projects supporting environmental goals. It anticipates approximately $1.3 billion of discretionary contributions to U.S. defined-benefit pension and postretirement plans.
- Management expects Teamsters-related year-over-year wage cost pressure through the first half of 2024. It also expects higher depreciation and amortization, and anticipates lower fuel prices; international fuel surcharge revenue may be pressured in the first half.
- The Teamsters ratified a five-year national agreement ending July 31, 2028. UPS estimated wage and benefit rates and other contract provisions will increase union costs at a 3.3% compounded annual rate over the contract term. The company launched “fit to serve,” targeting a workforce reduction of approximately 12,000 positions; it recorded $435 million in transformation costs in 2023 and accrued $205 million of separation costs expected to be paid in 2024.
- 2023 included $236 million of goodwill and asset impairment charges, a $359 million defined-benefit plan remeasurement loss, and a $61 million one-time compensation payment. The prior year included a $1.061 billion pension and postretirement plan remeasurement gain, making year-over-year earnings comparisons particularly affected by pension accounting.
- UPS is exploring strategic alternatives for its truckload brokerage business. Its Coyote trade name was written down by $111 million; management noted that further adverse assumptions could cause additional impairment. The company also recorded $125 million of goodwill impairments, including charges related to Roadie and Delivery Solutions.
- Principal risks include economic and geopolitical uncertainty, competition, fuel and currency volatility, labor costs and service disruptions, reliance on major customers, cybersecurity and data-protection exposure, climate-related regulation and severe weather. Amazon represented 11.8% of 2023 revenue, substantially all in U.S. Domestic Package.
- UPS disclosed certain lawsuits and disputes, including a certified employment-related class action and tax, duty, and regulatory disputes for which potential losses could not be estimated. It stated that other probable and estimable contingent losses were not material. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether package volumes recover as management expects in the second half of 2024, and whether pricing and mix can offset continued volume and surcharge pressure.
- How the new labor agreement, headcount reductions, and other efficiency initiatives affect costs, capacity, service levels, and customer retention.
- Whether forwarding markets and the truckload brokerage business improve, and the outcome of the strategic review of that business.
- Cash generation and liquidity after planned capital spending, pension contributions, debt maturities, and the decision not to anticipate share repurchases in 2024.
- Potential further impairments in Supply Chain Solutions and the sensitivity of pension obligations, self-insurance reserves, and tax contingencies to changing assumptions.