UPS Q1 2021 Form 10-Q Summary
Business context and reporting period
United Parcel Service, Inc. reported unaudited results for the three months ended March 31, 2021, compared with the same period in 2020. Management attributed strong package growth primarily to elevated e-commerce demand during the COVID-19 pandemic, alongside continued growth in small- and medium-sized businesses. Results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $22.908 billion | $18.035 billion |
| Operating profit | $2.765 billion | $1.072 billion |
| Operating margin | 12.1% | 5.9% |
| Net income | $4.792 billion | $965 million |
| Diluted EPS | $5.47 | $1.11 |
| Net cash from operations | $4.531 billion | $2.550 billion |
| Capital expenditures | $834 million | $933 million |
Reported earnings included a $3.290 billion pre-tax pension mark-to-market gain, with a $2.5 billion after-tax effect. UPS reported non-GAAP adjusted diluted EPS of $2.77 after excluding this gain, transformation costs and the UPS Freight held-for-sale valuation allowance. These adjusted measures are not substitutes for GAAP results.
- Revenue by segment: U.S. Domestic Package $14.010 billion, up 22.3%; International Package $4.607 billion, up 36.2%; Supply Chain & Freight $4.291 billion, up 34.3%.
- Operating profit by segment: U.S. Domestic Package $1.359 billion (9.7% margin); International Package $1.085 billion (23.6%); Supply Chain & Freight $321 million (7.5%).
- Balance sheet and liquidity: Cash and cash equivalents were $7.731 billion and marketable securities $351 million at March 31. Total debt was $23.727 billion, including current maturities; long-term debt and finance leases were $21.916 billion. Total shareowners’ equity was $7.159 billion.
- Cash uses and shareholder returns: Investing activities used $766 million and financing activities used $1.945 billion. Dividends paid were $858 million; share repurchases were suspended.
Material changes versus the prior comparable period
- Revenue increased 27.0%; average daily package volume rose 14.3%, and average revenue per piece rose 11.4% to $12.12. There was one fewer operating day than in Q1 2020.
- Operating profit grew 157.9%. Operating expenses rose 18.7%, including higher compensation, purchased transportation and costs associated with greater shipment volumes.
- Net income and EPS increased sharply, but the comparison is substantially affected by the 2021 pension gain. The company’s adjusted diluted EPS was $2.77.
- Operating cash flow increased to $4.531 billion from $2.550 billion; capital expenditures declined to $834 million from $933 million.
- Pension and postretirement benefit obligations on the balance sheet fell to $9.594 billion from $15.817 billion at year-end 2020, principally reflecting the pension remeasurement. Accumulated other comprehensive loss narrowed to $4.659 billion from $7.113 billion.
Outlook, commentary, risks and unusual items
- UPS expected 2021 capital expenditures of approximately $4.0 billion. It expected pension and U.S. postretirement medical plan contributions of approximately $72 million and $63 million, respectively, over the remainder of 2021. No full-year revenue or earnings guidance is provided in the filing text.
- Management expected residential deliveries to remain elevated and cited strong SMB, international, forwarding and healthcare demand. Capacity constraints and surcharges supported some yields, while volume growth increased operating costs.
- The American Rescue Plan Act prompted a remeasurement of the UPS/IBT pension plan. UPS expected the Central States Pension Fund to seek federal assistance, which the company said currently obviated potential coordinating-benefit obligations through 2051. The outcome remains subject to interpretations, approvals, actuarial assumptions and the PBGC’s ability to meet commitments.
- UPS Freight was sold to TFI International on April 30, 2021, after quarter-end. The filing states proceeds are intended to repay debt. In Q1, UPS recorded a further $66 million pre-tax valuation allowance related to the disposal group; prior 2020 impairment charges were $686 million pre-tax.
- Other unusual items included $118 million of pre-tax transformation strategy costs and $24 million of asset impairment charges related to canceled facility expansion projects.
- Risks highlighted include continued pandemic effects, economic and competitive conditions, labor negotiations and potential work stoppages, fuel and currency fluctuations, pension and benefit obligations, cybersecurity and operational disruptions, and legal, regulatory and tax matters. The filing reports ongoing government and legal matters but does not expect the described matters to have a material impact; outcomes remain uncertain.
Important facts for investors to verify
- Reconcile reported earnings to adjusted EPS, particularly the pension remeasurement gain and the related tax effects.
- Track implementation and financial effects of the ARPA pension assistance program and any subsequent plan remeasurement.
- Verify the completed UPS Freight sale proceeds, debt repayment and resulting segment comparability in later reports.
- Assess whether package volumes, revenue per piece and surcharges can sustain margins as pandemic-related demand and capacity conditions change.
- Monitor debt maturities, liquidity, planned capital spending and pension contributions against operating cash generation.