United Parcel Service, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request identifies 2021 Q4, this filing is an annual report; the information provided does not give a complete standalone fourth-quarter income statement.
Business context
UPS operates U.S. Domestic Package, International Package and Supply Chain Solutions businesses. It delivered an average of 25.2 million packages per day in 2021 across more than 220 countries and territories. Management’s strategy emphasizes higher-quality revenue, targeted growth in SMB and B2B, healthcare and other higher-yielding markets, and lower cost to serve.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $97.287 billion | $84.628 billion |
| Operating profit | $12.810 billion | $7.684 billion |
| Operating margin | 13.2% | 9.1% |
| Net income | $12.890 billion | $1.343 billion |
| Diluted EPS | $14.68 | $1.54 |
| Operating cash flow | $15.007 billion | $10.459 billion |
| Capital expenditures | $4.194 billion | $5.412 billion |
| Cash, cash equivalents and marketable securities | $10.6 billion | — |
| Total debt, including finance leases | $21.915 billion | $24.654 billion |
- Average daily package volume rose 2.3% to 25.25 million; average revenue per piece increased 12.6% to $12.32.
- U.S. Domestic Package revenue grew 12.7% to $60.317 billion; operating profit was $6.436 billion and margin was 10.7%, versus 7.3% in 2020.
- International Package revenue grew 22.6% to $19.541 billion; operating profit was $4.646 billion and margin was 23.8%, versus 21.5%.
- Supply Chain Solutions revenue increased 14.8% to $17.429 billion; operating profit was $1.728 billion and margin was 9.9%, versus 2.4%. Results include UPS Freight only through its April 30, 2021 divestiture.
- Operating expenses rose 9.8%, led by purchased transportation, up 21.9%, and fuel, up 49.0%. Compensation and benefits increased 4.9%.
- Reported net income and EPS were strongly affected by pension accounting. UPS recorded a $3.272 billion pre-tax defined-benefit mark-to-market gain in 2021, compared with a $6.484 billion loss in 2020. Adjusted diluted EPS, excluding specified items, was $12.13.
Material changes and capital position
- Revenue increased 15.0% and operating profit rose 66.7% year over year. Higher shipment yields, fuel and demand surcharges, mix improvements and growth contributed; operating expenses also increased materially.
- Operating cash flow increased to $15.007 billion. The company paid $3.437 billion in dividends, repurchased $500 million of shares and repaid $2.773 billion of debt principal. Year-end debt was lower by $2.739 billion.
- UPS sold UPS Freight for $848 million in cash proceeds and used the proceeds to reduce debt. It acquired same-day delivery platform Roadie for $586 million in October; Roadie had no material effect on 2021 results.
- Year-end shareowners’ equity was $14.269 billion, compared with $669 million in 2020, reflecting in part pension remeasurement impacts and higher retained earnings.
Outlook, commentary and risks
- Management said demand was expected to remain strong. It anticipated 2022 U.S. volume growth broadly consistent with 2021 and international volume growth accelerating; international revenue-per-piece growth was expected to moderate.
- UPS expected 2022 capital expenditures of approximately $5.5 billion, with about 60% allocated to expansion projects; discretionary company-sponsored U.S. pension contributions of approximately $1.9 billion; and approximately $1.0 billion of share repurchases. The Board raised the quarterly dividend to $1.52 per share in early 2022.
- Management cited continued supply-chain disruption, capacity constraints, inflation, fuel costs and labor-market pressures. These factors may raise transportation, wage and operating costs; management expected some cost-per-piece increases to persist into 2022.
- Key risks include COVID-19 uncertainty, competition and customer concentration, labor relations and employee availability, fuel and currency movements, cyber and data-security events, climate-related costs, pension and benefit obligations, and legal or regulatory matters. Amazon represented 11.7% of 2021 revenue, substantially all in U.S. Domestic Package.
- The Teamsters national master and local supplemental agreements covering approximately 327,000 employees run through July 31, 2023. UPS reported that it met its debt covenants and had no commercial paper outstanding at year-end.
- UPS disclosed small-revenue transactions involving parties designated on the U.S. sanctions list, and said it had added screening measures. The filing describes the related revenue and profit as approximately $573 and $157, respectively, for one party, and $29 and $8 for another; the filing’s displayed units for these amounts are unclear in the provided text.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operating performance versus pension mark-to-market gains and other adjustments; compare GAAP results with adjusted EPS of $12.13.
- Whether the 2021 improvements in revenue per piece, mix and segment margins can be sustained as surcharges, demand and shipment mix change.
- The pace and cost impact of fuel, purchased transportation, wage inflation and labor availability in 2022.
- Cash needs for planned capital spending, pension contributions, debt maturities and shareholder returns, including the company’s expected $1.9 billion pension contribution and $5.5 billion capital expenditure program.
- UPS Freight divestiture comparability, Roadie integration and expected benefits, and the concentration and credit exposure associated with Amazon and other large customers.
- The underlying facts and units in the sanctions-related disclosure, and any material developments in pension, tax, legal or regulatory contingencies.