The price of UPS Inc. shares rocketed at the start of Tuesday trading and never looked back after the company reported what may have been the strongest financial results in its 115-year history.
Near Tuesday’s market close, UPS (NYSE: UPS) shares rose nearly $29.50 a share to $231.64, a gain of nearly 14.6% on the session. Shares took off after the Atlanta-based company posted fourth-quarter results that left even analysts’ best-case estimates in the dust. UPS’ momentum is so strong that it plans to achieve its original 2023 consolidated revenue and operating targets a year earlier. UPS expects to generate $102 billion in revenue this year, crossing the $100 billion top-line threshold for the first time. It also expects to deliver a 13.7% gain in adjusted operating margin over 2021 totals.
In a stunning move, UPS declared a 49% increase in its quarterly dividend, the largest in its history. The new quarterly dividend of $1.52 a share takes effect this quarter.
In the fourth quarter, UPS posted $3.59 in adjusted diluted earnings per share, beating analysts’ median estimates by 40 to 50 cents a share, depending on the source of the projections. Revenue hit $27.8 billion, up 11.5% year-on-year. Operating profit hit $3.9 billion, up 37% on an adjusted basis and the highest quarterly operating profit in the company’s history. Operating margins jumped 2.75 full percentage points to 14.2%.
Full-year records fell as well. Revenue increased 15% year-on-year to a record $97.3 billion, and operating profit rose nearly 51% to $13.1 billion. Earnings per share on a diluted basis rose 47% to $12.13. UPS generated nearly $11 billion in free cash flow, more than double the year-end 2020 levels. Adjusted operating margin came in at 13.5%.
UPS’ three operational segments performed strongly, with revenue and productivity gains offsetting flattish volume growth. U.S. domestic package revenue rose to $17.7 billion, up 12.4% year-on-year, despite lower-than-expected volumes due to the impacts of the omicron variant and supply chain bottlenecks on retail sales activity. Adjusted operating profits rose nearly $800 million to $2.165 billion, resulting in an adjusted operating margin of 12.2%.
The international package segment posted a 13.1% revenue gain to nearly $5.4 billion, with an adjusted operating margin of 24.7%. Revenue per piece rose 16.4% year-on-year, more than offsetting a 4.8% year-over-year volume decline due to the continued impact of COVID-19 restrictions. The company’s European cross-border ground operations did a lot of the heavy lifting for the unit.
The Supply Chain Solutions segment, which encompasses all of UPS’ businesses not directly associated with package delivery, reported a 6.7% revenue increase to nearly $4.7 billion. Adjusted operating margins rose 9.7% to $456 million.
UPS navigated around what CEO Carol B. Tomé said on Tuesday’s analyst call may have been the “hardest” holiday shipping season in its history. In an atypical fashion, the lion’s share of growth came early in the period and then slowed toward the end of the cycle as concerns over omicron and supply chain bottlenecks cut into retail sales and kept inventory-to-sales ratios near historical lows.
In the domestic segment, by far the company’s largest, favorable customer mix contributed heavily to the impressive quarterly numbers. Small to midsize (SMB) customers, high-margin customers that rely on UPS for a broad range of services, accounted for nearly 26% of U.S. volumes, up about 250 basis points from 2020 levels. Average daily SMB volume increased 8.4% from the 2020 quarter, UPS said. In addition, business-to-business (B2B) traffic, which generates higher margins than residential traffic because of superior pickup and delivery density, rose 8.8% year-over-year. B2B accounted for 36% of UPS’ domestic volume as of the end of the quarter, up from 33% in the 2020 quarter.
Delivery surcharges imposed on fuel consumption and delivery demand played a key role in the 10.5% increase in quarterly domestic per-piece revenue. The combined levies accounted for nearly 500 basis points of the per-piece revenue growth, UPS said. Company executives don’t expect fuel surcharges to play as much of a factor in UPS’ 2022 results as they did in 2021.
UPS said it expects domestic revenues to grow by 5.5% this year, with per-piece revenue set to increase at a faster rate than domestic volume. The company said that delivery demand should again exceed capacity, leading to what Tomé said would be a “firm” pricing environment throughout the year. International segment revenue should grow by 7.7%, with volumes, especially in its transborder business, growing faster than revenue. Supply chain solutions revenue should come in at around $17 billion this year, UPS said.
Amazon.com Inc. (NASDAQ: AMZN), UPS’ largest customer, accounted for 11.9% of UPS’ total sales in 2021, on par with 2019 levels, Tomé said. In 2020, Amazon accounted for 13.3% of total sales. Despite the lower percentage, Tomé said UPS actually handled more volume in 2021 than in 2020.
“We have a great relationship with Amazon, and we have mutually agreed about the volume that we should take and the volume that they should keep that works best for both companies,” she said.
The FREIGHTWAVES TOP 500 For-Hire Carriers list includes UPS Inc. (No. 2).