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Text: These reports, when filed, are available on the UPS investor relations website and from the SEC.
For the fourth quarter of 2021, GAAP results include a noncash after-tax mark-to-market pension charge of $14 million and after-tax transformation and other charges of $45 million.
The after-tax total for these items is $59 million, an impact to fourth quarter 2021 earnings per share of $0.07 per diluted share.
The mark-to-market pension charge of $14 million represents losses recognized outside of a 10% corridor on company-sponsored pension and postretirement plans.
Unless stated otherwise, our comments will refer to adjusted results, which exclude year-end pension charges and transformation and other charges.
What an incredible year it's been at UPS.
Let me begin by recognizing the efforts of our amazing UPSers, 534,000 strong around the world.
Not only did our team once again provide industry-leading service during peak, but over the last year, we delivered 1.1 billion COVID-19 vaccine doses, with 99.9% on-time service.
I'm so very proud of our team and what we've accomplished.
The external environment is challenging due to the ongoing impacts of the pandemic, labor tightness, upstream supply chain jams and rising inflation.
But inside our better, not bigger framework, we are maniacal about controlling what we can control.
We are laser-focused on improving revenue quality, reducing our cost to serve and allocating capital in a disciplined fashion.
This is enabling us to move faster and to be more agile so that we capture the best opportunities in the market, enhance the customer experience and continuously improve our financial performance.
Looking at the fourth quarter, our results exceeded our expectations, driven by improved revenue quality across all three of our business segments and significant gains in productivity.
Consolidated revenue rose 11.5% from last year to $27.8 billion, and operating profit grew 37.7% from last year to $4 billion.
This is the highest quarterly operating profit in the company's history.
And for the full year 2021, our business delivered record financial results.
Consolidated revenue increased 15% to reach $97.3 billion, and operating profit totaled $13.1 billion, 50.8% higher than last year.
We generated $10.9 billion in free cash flow, more than double the amount generated in the prior year.
And diluted earnings per share were $12.13, an increase of 47.4%.
In a moment, Brian will provide more detail about our financial results.
At our June investor and analyst day, I said intent is not a strategy and vision without action is just a dream.
At UPS, we are acting on our customer-first, people-led, innovation-driven strategy as we transform nearly every aspect of our business.
Starting with customer first.
As we've discussed, we are focused on growing in the parts of the market that value our end-to-end network, including B2B, healthcare, SMBs and large enterprise accounts.
In 2021, our SMB average daily volume grew 18% and represented 26.8% of our total U.S. volume, putting us on track to achieve our 2023 target of more than 30%.
Our digital access program, or DAP, makes it easy for SMBs to access UPS services, and it's an important driver of our SMB growth.
In 2020, I challenged the team to turn DAP into a $1 billion business.
In 2021, DAP generated $1.3 billion in revenue.
Looking ahead, we expect DAP to reach more than $2 billion in 2022 as we add new partners and expand to additional countries.
And in the fourth quarter, our international SMB revenue growth rate was 18%.
As we expand DAP, grow with SMBs across Europe and introduce new partnerships, we expect to gain overall SMB revenue share faster than the market growth.
Healthcare is another market we are focused on.
And in 2021, our healthcare portfolio reached more than $8 billion in revenue.
Here, we serve complex customers with our global footprint of healthcare facilities and cold chain solutions.
Our healthcare expertise and end-to-end solutions are unmatched in the industry, and we are well on our way to hitting our $10 billion revenue target for 2023.
And amid the bottlenecks and uncertainty, our supply chain solutions group is providing customer supply chain flexibility and resiliency through alternative routings and solutions.
Demand for forwarding products continued to be strong in the fourth quarter.
In fact, ocean shipments were up double digits and container rates remain elevated in the market.
Now, from an experience perspective, customer first is about providing a frictionless end-to-end customer experience.
We are attacking the biggest pain points first and, over the last several months, have rolled out improvements to the digital experience in pickup, claims and ups.com.
You may not know this, but we generate over $9 billion in gross revenue annually from transactions on our global website.
We redesigned the U.S. site in 2021 and saw site visits grow 100-fold, with an equally impressive growth in monthly page views, up from 10,000 in January to 600,000 in December.
We've got more plans to improve the ups.com experience around the world.
which should lead to higher revenue and better customer satisfaction.
We know it will take time to move the needle on our Net Promoter Score, which stands at 30, but we set a target of 50 and have laid out a path to get there.
Moving to the second element of our strategy, people led.
Here, we focus on the employee experience and making UPS a great place to work.
We measure our performance by how likely an employee is to recommend others to work at UPS.
When I became CEO in 2020, our likelihood to recommend metrics stood at 51% globally, and our goal is to surpass 80%.
We've made great strides, gaining 10 percentage points to finish 2021 at 61%.
And now to the last leg of our strategic platform, innovation driven is at the heart of what we do.
Our global smart logistics network, powered by technology developed by UPS engineers, enabled us to deliver another successful peak.
It may have been our hardest peak ever.
We had higher volume than we expected at the beginning of the quarter and lower volume at the end, but our sales, engineering and operating teams remained agile and pivoted with changes in global market conditions and the needs of our customers.
We delivered excellent service levels, avoided chaos costs and improved efficiency in the network.
In fact, productivity in our U.S. operations improved by 1.7% for the fourth quarter, as measured by pieces per hour.
Progress on the innovation-driven element of our strategy is all about driving higher returns on invested capital.
As Brian will detail, in 2021, we reversed a multiyear downward trend in this metric and delivered a return on invested capital of 30.8%, 910 basis points above 2020.
We remain disciplined in our capital allocation priorities and commitments.
In regard to capital expenditures, we are increasing our investments back into the business to drive innovation and growth.
We just started the first phase of what we're calling smart package, smart facility, which, over time, will put RFID tags on all of our packages.
This initiative will enhance customer experience while improving UPS productivity by eliminating millions of manual scans every day.
Brian will share more detail on our capex plans during his remarks.
In June, we told you we were going to target a dividend payout ratio at year-end of 50% of adjusted earnings per share, and we're doing just that.
Today, the UPS board approved a 49% increase in the quarterly dividend, from $1.02 per share to $1.52 per share.
This represents the largest quarterly dividend increase in our company's history.
Our strategy is building a solid foundation for our business and enabling agility.
While we expect 2022 to be another challenging year, we've got momentum.
So let me end by sharing our 2022 financial goals.
Building on the record results we delivered last year, we anticipate delivering our 2023 consolidated revenue and operating margin targets one year ahead of our plan.
In 2022, consolidated revenues are expected to be about $102 billion.
Operating margin is expected to be approximately 13.7% and return on invested capital is anticipated to be above 30%.
Brian will provide more details on our outlook.
I'm excited about the many opportunities in front of us.
In my comments, I'll cover three areas, starting with our fourth quarter results, then I'll cover our full year 2021 results, including cash and shareholder returns.
And lastly, I'll share our financial outlook for 2022.
In the fourth quarter, supply chain challenges and the emergence of the Omicron COVID-19 variant weighed on global economic growth.
In fact, the U.S. December retail sales report came in lower than forecasted, and the inventory-to-sales ratio remained at historic lows.
Despite these factors, our financial performance was better than we expected as the progress we've made executing our strategy continues to deliver strong results.
Consolidated revenue increased 11.5% to $27.8 billion.
Consolidated operating profit totaled $4 billion, 37.7% higher than last year.
Consolidated operating margin expanded to 14.2%, which was 270 basis points above last year.
For the fourth quarter, diluted earnings per share was $3.59, up 35% from the same period last year.
And full year earnings per share was $12.13 per diluted share, an increase of 47.4% year over year.
Now, let's look at our business segments.
U.S. domestic delivered outstanding fourth quarter results.
Our success was driven by gains in revenue quality and productivity, as well as our ability to quickly adjust our network to match capacity with the needs of our customers while providing industry-leading service.
Average daily volume increased by 39,000 packages per day, or 0.2% year over year, to a total of 25.2 million packages per day.
This was below our expectations due to the soft retail environment in December.
Regarding revenue quality, the impact of our better, not bigger approach is continuing to drive improvement in customer mix.
In fact, SMB average daily volume, including platforms, grew 8.4%, outpacing the market.
And in the fourth quarter, SMBs made up 25.8% of U.S. domestic volume, up 240 basis points versus last year.
Mix also shifted positively toward commercial volume as our B2B average daily volume continued to recover and was up 8.8%.
B2B represented 36% of our volume compared to 33% in the fourth quarter of 2020.
For the quarter, U.S. domestic generated revenue of $17.7 billion, up 12.4%, driven by a 10.5% increase in revenue per piece.
Fuel drove 380 basis points of the revenue per piece growth rate and demand-related surcharges drove 110 basis points of the growth rate increase.
Revenue per piece grew across all products and customer segments, with ground revenue per piece up 10%.
Total expense grew 8.1%.
Fuel drove 230 basis points of the expense growth rate increase.
Wages and benefits, which included market rate adjustments, drove 410 basis points of the increase.
And the remaining increase in the expense growth rate was due to several factors, including higher depreciation, federal excise taxes and weakened expansion costs.
Productivity improvements helped partially offset the increase in expense.
For example, through our ongoing efforts to optimize our trailer loads, we eliminated over 1,000 loads per day compared to the same time period last year.
Our teams did an excellent job executing our plan and adjusting where appropriate.
Early in the quarter, volume came in stronger than expected, and we quickly adjusted the network by leveraging our weekend operations, package flow technology and automated facilities.
Late in the quarter, volume levels were lower than we expected as Omicron and inventory challenges negatively impacted the enterprise retail sector.
Again, our operators adjusted the network and, importantly, also pulled out cost.
We decreased staffing levels and returned rental equipment early, which helped to lower the year-over-year operating expense growth rate.
The U.S. domestic segment delivered $2.2 billion in operating profit, an increase of $786 million or 57% compared to the fourth quarter of 2020, and operating margin expanded 340 basis points to 12.2%.
The segment delivered excellent results by focusing on revenue quality and adjusting network capacity.
Because of tough year-over-year comps and COVID-19 dynamics, we anticipated a fourth quarter decline in average daily volume, which was down 4.8%.
On a more positive note, product mix was favorable, with B2B average daily volume up 4.7% on a year-over-year basis.
This partially offset a decline in B2C volume, which was down 18.4% compared to an increase of 104% during the same period last year.
In addition to tough year-over-year comps, total export average daily volume declined by 5.2% due to the decrease in volume between the U.K. and Europe arising from Brexit disruptions and from fewer flights coming out of Asia.
In the fourth quarter, we operated 105 fewer flights than planned, primarily due to COVID-19.
Despite these factors, for the fourth quarter, international revenue increased 13.1% to $5.4 billion.
Revenue per piece increased 16.4%, including a 730-basis-point benefit from fuel and a 340 basis point benefit from demand-related surcharges.
The international segment delivered record operating profit and fourth quarter operating margin.
Operating profit was $1.3 billion, an increase of 14.7%, and operating margin was 24.7%.
Now, looking at supply chain solutions.
The business segment delivered record fourth quarter top and bottom-line results as our team executed extremely well in a challenging environment.
Revenue increased to $4.7 billion, up 6.7%, despite a $789 million reduction in revenue from the divestiture of UPS freight.
Looking at the key performance drivers.
Forwarding revenue was up 37.9% and operating profit more than doubled as global market demand remained strong and capacity stayed tight.
International air freight kilos increased 3.3%.
And in ocean freight, volume growth on the Transpacific Eastbound Lane, our largest trade lane, grew 7.8%, which was more than twice the market growth rate.
Within Forwarding, our truckload brokerage unit grew revenue and profit by double digits, driven by revenue quality initiatives and strong cost management.
And our healthcare portfolio delivered strong profits in the fourth quarter, led by pharma and medical device customers.
In the fourth quarter, supply chain solutions generated strong operating profit of $456 million and delivered an operating margin of 9.7%.
Walking through the rest of the income statement, we had $173 million of interest expense.
Other pension income was $267 million.
And lastly, our effective tax rate came in at 22%.
Now, let me comment on our full year 2021 results.
Starting at the consolidated level, revenue increased $12.7 billion to $97.3 billion.
We reduced our cost to serve through a combination of nonoperating cost reductions, along with improved productivity.
We grew operating profit by $4.4 billion, an increase of 50.8%, finishing the year at $13.1 billion.
Operating margin was 13.5%, an increase of 320 basis points.
And for context, this is the highest consolidated operating margin we've had in 14 years.
We increased our ROIC to 30.8%, an increase of 910 basis points.
We generated $10.9 billion of free cash flow, an increase of 114% over 2020, and we strengthened the balance sheet by paying off $2.55 billion of long-term debt.
And we reduced our pension liabilities by $7.8 billion, which improved our debt-to-EBITDA ratio to 1.9 turns compared to 3.6 last year.
And we returned over $3.9 billion of cash to shareholders through dividends and share buybacks.
Now, for a few full year highlights for the segments.
domestic, operating profit was up 62.7%, an increase of $2.6 billion, to reach $6.7 billion for the full year.
And we expanded operating margin to 11.1%, a year-over-year increase of 340 basis points.
International grew operating profit by $1.2 billion, ending the year at a record $4.7 billion in profit.
And operating margin was 24.2%, an increase of 200 basis points.
And supply chain solutions increased operating profit by $649 million, up 61.3%, and delivered operating margin of 9.8%, 280 basis points above 2020.
2021 was an outstanding year for UPS, which brings us back to our outlook for 2022.
Global GDP is expected to grow 4.2%.
We are continuing to pay close attention to and manage through several external factors, including COVID-19, inflationary pressures, upstream supply chain constraints and labor shortages.
As a result, we expect the environment to remain dynamic in 2022.
Most importantly, within this backdrop, we will focus on controlling what we can control and continuing to advance our strategic initiatives.
And as Carol stated, we expect to deliver our 2023 consolidated financial targets one year early.
So looking at 2022, on a consolidated basis, revenues are expected to be about $102 billion, which takes into account the divestiture of UPS freight.
Additionally, consolidated operating margin is expected to be approximately 13.7%.
In U.S. domestic, we anticipate revenue growth of around 5.5%, with revenue per piece growing faster than volume.
We expect pricing in the industry to remain firm and will continue to price based on the value we provide to our customers.
As a result, we anticipate domestic operating margin will expand around 50 basis points in 2022.
Lastly, in the U.S., we expect to deliver an incremental revenue-to-profit conversion percentage in the low 20s for the full year.
Moving to the international segment.
We expect to continue growing faster than the market.
Revenue growth is anticipated to be approximately 7.7%, with volume growing slightly faster than revenue.
More specifically, we expect to grow fastest in our transborder ground products.
Additionally, we expect international demand-related surcharges to remain elevated in 2022.
Pulling it all together, operating profit in the international segment is expected to increase around 5% and operating margin is anticipated to be around 23.6%.
In supply chain solutions, we expect revenue to be around $17 billion, driven by continued strong growth in healthcare and elevated demand in Forwarding.
However, we expect ocean surcharge rates to moderate below 2021 peak levels.
Therefore, we expect operating profit to be down from what we reported in 2021.
Operating margin is expected to be about 9.4%.
And for modeling purposes, below the line, we anticipate $1.2 billion in other pension income, partly offset by $665 million in interest expense.
The full year net impact is expected to be around $570 million, which can be spread evenly across the quarters.
Now, let's turn to full year 2022 capital allocation.
As we discussed at last year's Investor and Analyst Day, we've transitioned to a disciplined and programmatic approach to capital expenditures.
In line with the capex range we shared then, we expect 2022 capital expenditures to be about 5.4% of revenue or $5.5 billion.
These investments will continue to improve overall network efficiency and move us further down the path to achieving our 2050 carbon-neutral goals.
About 60% of our capital spending plan will be allocated to growth projects and about 40% to maintenance.
Let me give you a few project highlights.
We have 30 delivery centers and two automated hub projects planned to be delivered this year.
Combined, these projects will enable us to drive greater efficiency by better balancing sort capacity with delivery capacity.
We will purchase over 3,700 alternative fuel vehicles this year, including around 425 arrival electric delivery vehicles to be deployed in the U.S. and in Europe.
We will take delivery of two new 747-8 aircraft in 2022, which adds international capacity and will make predelivery payments on the 19 Boeing 767 freighters that we announced in December.
The 767s are planned to enter our fleet between 2023 and 2025.
And lastly, across these projects and others, our annual capital expenditures will again include over $1 billion of investments that support our carbon-neutral goals.
Now, let's turn to our expectations for cash and the balance sheet.
We expect free cash flow of around $9 billion, including our annual pension contributions, which are equal to our expected service costs.
As Carol mentioned, the board has approved a dividend per share of $1.52 for the first quarter, which represents a 49% increase in our dividend.
We are planning to pay out around $5.2 billion in dividends in 2022, subject to board approval.
We expect to buy back at least $1 billion of our shares, and we'll evaluate additional opportunities as the year progresses.
We expect diluted share count to be about 880 million shares throughout the year.
Finally, our effective tax rate is expected to be around 23%.
In closing, the strategic and financial progress we've made in 2021 delivered consistent returns and created strong momentum as we entered 2022.
We remain laser-focused on continuously improving our financial performance by enhancing revenue quality, reducing our cost to serve and staying disciplined on capital allocation.
And operator, please open the lines.

user
releases 4q 2021 earnings.
sees fy revenue about $102 billion.
for q4 of 2021, gaap results include a total charge of $59 million, or $0.07 per diluted share,.
for q4 of 2021, gaap results include a total charge of $59 million.

assistant