Atlanta-based freight transportation and logistics services provider UPS posted very strong fourth quarter and full-year 2020 results today.
Quarterly revenue, at $24.9 billion, increased 21% annually, and adjusted earnings per share, at $2.66, was up 26.1% compared to a year ago, far outpacing Wall Street expectations, at $2.10. Quarterly operating profit was up 26% to $2.87 billion, setting a new company record. And for the full-year 2020, revenue rose 14.2% to $84.6 billion, and operating profit was up 7% to $8.71 billion.
“Our financial performance in the fourth quarter exceeded our expectations, and I thank all UPSers for their extraordinary efforts to deliver industry-leading service through the holidays.” said Carol Tomé, UPS chief executive officer, in a statement. “I’d also like to thank our customers who worked with us during this challenging year. As we look past 2020 into the new year, we are optimistic. During the fourth quarter, we began transporting COVID-19 vaccines and we stand ready to deliver hope and health to people around the world.”
Individual segment results for Q4:
- U.S. domestic package revenue headed up 17.4%, to $15.7 billion, for its highest ever quarterly revenue, and average daily volume rose 8.9%, to 25.155 million daily packages, with UPS attributing those gains to growth from small- and medium-sized businesses, and total average revenue per package up 7.9% at $10.09;
- International Package revenue, at $4.77 billion, was up 26.8%, with average daily volume up 21.9%, to 4.295 million packages per day, and total revenue per package up 3.8% to $17.27, with UPS noting that this was driven by export growth from all regions; and
- Supply Chain & Freight revenue, at $4.382 billion, rose 29%, with UPS pointing to strong market demand in nearly all businesses, including freight forwarding out of Asia and also UPS Healthcare
On an earnings call earlier today, CEO Tomé said that the company’s quarterly results were strong and considerably better than expected. Addressing UPS’s fourth quarter holiday performance, she described the environment as very dynamic, largely due to market demand exceeding market supply.
“[W]e were ready,” she said. “Our early collaboration with customers and a disciplined approach to executing on peak plans proved to be very successful,” she said. “We delivered industry-leading service levels, which, in turn, accelerated new customer requests for our services. As peak holidays approached, we saw SMBs increasingly turn to UPS. In the U.S., for the fourth quarter, SMB volume grew 28.5%, outpacing our larger customers, which grew by 4%. By running a network with more discipline and through the deployment of new tools, we reduced what we call ‘chaos costs,’ or costs associated with bottlenecks and overtime pay. Additionally, SurePost Redirect reached a new record in December. Nearly 50% of SurePost volume was delivered by UPS drivers, optimizing our network.”
And Peak Season activity outside of the U.S. turned in the highest volume levels in UPSs history, paced by excellent service levels, she added. With an eye on the 2021 Peak Season, Tomé said UPS has identified additional areas for improvement and are including them in its Peak 2021 planning.
UPS CFO Brian Newman said on the call that the current macroeconomic environment can best be described as dynamic and has created both opportunities and obstacles, pushing business activity in multiple directions.
And he noted that in the fourth quarter consumers continued to shop online, with annual growth for non-store retail sales up 24.3% to finish at 20.9% of all U.S. retail sales, for the quarter. While macro conditions are weak overall, when adding the negative industrial economic outlook into the equation, he explained that the shift in buying patterns generated elevated residential demand.
In terms of pricing, Newman said that UPS is extremely pleased with its revenue quality efforts, which were well above company expectations for the quarter.
“SMB growth accelerated, and we had higher than anticipated Peak Season surcharge revenue, and as a result reported revenue per piece grew 7.8% year-over-year, with Ground revenue per piece up 11.2%,” he said.
Jerry Hempstead, president of Orlando-based Hempstead Consulting, said that UPS had the best quarter than he can remember in his 40 years of parcel sector experience.
“They were hitting on all cylinders and the really hit the ball out of the park,” he said. “They are using the cash generated to clean up the balance sheet, which will give them a more secure future. The bad news buried in all the release and call is that they are ‘laser-focused’ on revenue quality and yield improvement. That translates to higher costs for [shippers] looking forward.”
UPS Freight sale: Late last month,UPS announced itis selling itsUPS Freightless-than-truckload (LTL) unit toTFI International Inc.,a Canadian holding company that is parent to truckload giant CFI and other transport entities, for $800 million, subject to working capital and other adjustments. The company will rebrand as “TForce Freight” under Canadian ownership.
On the earnings call, CEOTomé said that UPS Freight has been a capital intensive and low returning business.
“We do not need to own this business to provide an LTL solution for customers,” she said. “With the disposition of UPS Freight, we will be smaller, but we will be better without and see an improvement in our operating margins and return on invested capital. Being better and not bigger also means de-risking our balance sheet. We will use the proceeds of the sale…to pay down long-term debts.”
