UPS 2020 Form 10-K Summary
Business context and reporting period. United Parcel Service, Inc. (UPS) is a global package delivery and logistics company with three reporting segments: U.S. Domestic Package, International Package, and Supply Chain & Freight. This annual report covers the fiscal year ended December 31, 2020; it is not a standalone fourth-quarter filing.
Financial performance
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $84.628 billion | $74.094 billion | +14.2% |
| Operating profit | $7.684 billion | $7.798 billion | -1.5% |
| Operating margin | 9.1% | 10.5% | -1.4 percentage points |
| Net income | $1.343 billion | $4.440 billion | -69.8% |
| Diluted EPS | $1.54 | $5.11 | -69.9% |
| Net cash from operations | $10.459 billion | $8.639 billion | +$1.820 billion |
| Capital expenditures | $5.412 billion | $6.380 billion | -$968 million |
| Cash, cash equivalents and marketable securities | $6.316 billion | $5.741 billion | +$575 million |
| Total debt, including finance leases | $24.654 billion | $25.238 billion | -$584 million |
Operating cash flow less capital expenditures was approximately $5.047 billion in 2020, calculated from reported figures. Year-end current assets were $20.216 billion and current liabilities were $17.016 billion. UPS reported $22.031 billion of long-term debt and finance leases, in addition to current maturities. Shareowners’ equity fell to $669 million from $3.283 billion, largely amid pension-related effects recorded in other comprehensive income.
UPS reported adjusted diluted EPS of $8.23, a non-GAAP measure, excluding after-tax effects of $4.9 billion in pension mark-to-market losses ($5.66 per share), $629 million in Freight impairment charges ($0.72 per share), and $265 million in transformation costs ($0.31 per share). Fourth-quarter 2020 net loss was $3.347 billion, primarily reflecting the $6.484 billion pre-tax pension and postretirement mark-to-market charge.
Segments and changes versus 2019
- U.S. Domestic Package: Revenue increased 15.1% to $53.499 billion, while operating profit declined 6.6% to $3.891 billion and margin fell to 7.3% from 9.0%. Average daily volume rose 13.1%; residential e-commerce growth drove higher labor, delivery and outside-carrier costs.
- International Package: Revenue increased 12.1% to $15.945 billion. Operating profit rose 29.3% to $3.436 billion and margin improved to 21.5% from 18.7%, supported by export demand and capacity-related surcharges.
- Supply Chain & Freight: Revenue increased 13.5% to $15.184 billion, but reported operating profit fell to $357 million from $977 million, including a $686 million impairment associated with the planned Freight divestiture. Excluding specified adjustments, segment operating profit was $1.058 billion versus $1.002 billion.
Consolidated average daily package volume grew 12.8% to 24.676 million, while average revenue per piece increased 0.6% to $10.94. Revenue growth reflected e-commerce and residential deliveries, international forwarding demand, and market capacity constraints. Operating costs grew 16.1%, faster than revenue, notably compensation and benefits and purchased transportation.
Liquidity, capital allocation and outlook
- UPS said cash, expected operating cash flow, commercial paper access and capital markets should be adequate for operations, planned capital expenditures, pension contributions, debt service and shareholder returns.
- 2020 dividends declared were $4.04 per share; cash dividend payments were $3.374 billion. The quarterly dividend was raised to $1.02 per share in February 2021. Share repurchases were suspended in April 2020; UPS did not anticipate repurchases in 2021.
- Management expected 2021 capital expenditures of approximately $4.0 billion. UPS had $2.568 billion of debt principal due in 2021 and said it did not currently intend to refinance that debt when due.
- In January 2021, UPS agreed to sell UPS Freight to TFI International for $800 million, subject to adjustments, approvals and customary closing conditions; closing was expected in the second quarter of 2021. UPS intended to use proceeds to repay debt and expected the sale to improve operating margin and return on invested capital. The transaction could also trigger additional pension-related expense and a curtailment gain; the net impact was not stated clearly.
- No specific consolidated revenue or EPS guidance was provided. Management said it could not reasonably estimate the duration or severity of COVID-19 or the timing and extent of economic recovery.
Key risks, contingencies and unusual items
- COVID-19 and operating mix: The pandemic shifted demand toward residential e-commerce deliveries and away from business-to-business activity, changing cost-to-serve and creating uncertainty around customer demand, operations and liquidity.
- Pension exposure: Pension and postretirement obligations were $15.817 billion at year-end. UPS’s estimated Central States Pension Fund coordinating-benefit obligation was $5.5 billion; the estimate is sensitive to fund solvency, government assistance, discount rates and other actuarial assumptions.
- Customer concentration: Amazon and affiliates represented 13.3% of 2020 consolidated revenue, substantially all in U.S. Domestic Package, and approximately 18.1% of year-end net receivables.
- Labor and benefits: More than three-quarters of U.S. employees were union-represented. The Teamsters national master agreement and related supplemental agreements run through July 31, 2023. Labor disruptions, wage and benefit costs, and multiemployer plan conditions remain relevant risks.
- Other exposures: UPS cited fuel and foreign-exchange volatility, interest-rate and LIBOR transition risk, cybersecurity and system disruption, regulation, climate-related costs, self-insurance claims, tax uncertainty and litigation.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Critical audit matters included the Central States pension estimate, valuation of certain pension investments, and highly automated small-package revenue systems.
Most important facts for investors to verify
- Reconcile GAAP net income and diluted EPS with adjusted EPS, especially the pension mark-to-market and Freight impairment exclusions.
- Track residential delivery costs and U.S. Domestic Package margin as e-commerce volumes and customer mix evolve.
- Monitor the Central States coordinating-benefit estimate, pension funding needs and the effects of lower discount rates.
- Confirm closing terms, proceeds, debt repayment and final pension effects of the UPS Freight sale.
- Assess Amazon concentration and whether revenue growth is accompanied by sustainable yields and operating cash flow.
- Review 2021 capital spending, debt maturities, dividend commitments and liquidity against actual operating cash generation.