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Text: These reports, when filed, are available on the UPS investor relations website and from the SEC.
For the third quarter of 2021, GAAP results included after-tax transformation and other charges of $54 million or $0.06 per diluted share.
Unless stated otherwise, our comments will refer to adjusted results, which exclude transformation and other charges.
In the 17 months that I've been CEO, I've learned that no matter what comes our way, UPSers deliver.
But through it all, UPSers leverage the flexibility of our integrated network and the technology that powers it to deliver what matters.
A little over one year ago, we laid out our better, not bigger framework under a customer-first, people-led, innovation-driven strategy.
Inside that strategic framework is a focus on three main areas.
First is to improve revenue quality, including growing SMB volume.
Second is to reduce our cost to serve through productivity and cost takeout initiatives.
And third is to effectively allocate capital to create a better customer experience, happier UPSers, and higher returns on the capital we deploy.
While it is early in the execution of our strategy, the progress we are making is clearly visible in our results.
Looking at the third quarter, our performance was better than we anticipated.
Consolidated revenue rose 9.2% from last year to $23.2 billion, driven by another quarter of improved revenue quality across all three of our operating segments.
Consolidated operating profit grew 23.4% to $3 billion, driven by solid revenue growth and strong expense control.
Each of our segments delivered year-over-year operating profit improvement and double-digit operating margins.
And for the first nine months of 2021, UPS has generated more operating profit than any full year in our history.
Brian will share the details of our performance shortly.
As we've discussed, we are laser-focused on adding capabilities that enable UPS to grow with SMBs.
These improvements also benefit large customers that value our end-to-end network.
Expanded weekend delivery services is one of our new capabilities.
This initiative will be completed in the U.S. as planned by the end of this week.
We will now cover about 90% of the U.S. population on Saturday for both residential and commercial pickups and deliveries.
In addition, expanded Saturday services provides more capacity for Sunday SurePost delivery.
The best part of our weekend delivery program is that we've unlocked additional network capacity that benefits all customers without deploying additional capital.
And we've done this while expanding our U.S. operating margin on a year-over-year basis.
As we look at our third-quarter results, we see that SMBs value the new capabilities we are providing.
In the U.S., SMB average daily volume, including platforms, was up 10.9% year over year.
In fact, we've seen strong growth here for the past six quarters.
volume, up 380 basis points from one year ago.
And outside the U.S., SMB average daily volume growth was 3.9%.
We see many opportunities to grow our international SMB volume as we continue to improve our digital experiences and roll out DAP, our Digital Access Program, to customers outside of the U.S. Let me also touch on SMBs and healthcare.
When COVID-19 vaccines were rolled out late last year, the world turned to UPS, and we were ready with connected capabilities, technology, and expertise.
Our brand relevance here is attracting new SMB healthcare customers and significantly driving profit growth in this sector.
And just on COVID-19 vaccines, we are on track to deliver more than 1 billion vaccine doses by the end of this year with 99.9% on-time delivery.
We are relentlessly focused on reducing our cost to serve, and we're making good progress.
While Brian will go through the details, I'll call out a few highlights.
In the U.S. we drove a measurable improvement in productivity as PPH, or pieces per hour, increased by 2.5%.
Additionally, as Nando described at our June Investor Day, through our ongoing efforts to optimize loads in our trailers, cube utilization in the third quarter was up 520 basis points versus last year.
This helped us eliminate more than 10% of daily trailer loads year over year.
And as we've discussed previously, we are creating fewer but more impactful jobs.
So to reduce turnover and improve productivity, we are converting around 1,000 part-time supervisor positions in our operations into nearly 400 full-time positions at no additional cost to our company.
Turning to what we refer to as Transformation 2.0 or plans to optimize our nonoperating expense.
We are on track to eliminate $500 million in nonoperating costs this year, with about $500 million of additional opportunity in 2022.
Finally, our third area of focus is disciplined capital allocation.
Since we began executing our strategy, we've seen marked improvement in our employee satisfaction and competitive Net Promoter Scores, due in part to how we've allocated capital to enhance the employee and customer experience.
In October, we completed the acquisition of Roadie, a technology platform that also provides delivery services for packages that don't lend themselves to our small package network.
We continue to be disciplined in our capital spending practices.
This discipline, plus record earnings, yield a significant amount of cash.
So far this year, we've generated a record $9.3 billion in free cash flow.
And we expect full-year 2021 return on invested capital to be around 29%, which is a 730-basis-point improvement from what we reported at the end of last year.
Turning to the fourth quarter.
The global supply chain market is challenging.
There are capacity, congestion, and cost concerns.
But for UPS, our outlook is positive as, once we get a package, we get it delivered.
Outside of the U.S., where we peak, we are ready, and tight capacity benefits our freight forwarding business.
In the U.S., we project a robust peak season, and through our planning efforts, we believe we are well on our way to deliver a peak that will be a win for UPS shippers, recipients, and share owners.
Let me share a few details.
To begin with, the calendar is helpful as we have one more peak operating day than last year.
Further, we've expanded weekend delivery and added additional sorting capacity.
Nonetheless, we expect consumer demand will outpace capacity in the market.
We began collaborating with our largest customer several months ago, and we'll stay in close contact with them during the holiday shipping season.
Our technology allows us to match daily capacity with customer demand.
And where we need to, we will again control the amount of volume that enters our network.
These actions will minimize chaos costs and enable high service levels.
On the labor front, we've digitized and simplified our job application process.
enabling qualified applicants to receive a job offer within 30 minutes of applying.
In parts of the country, labor costs are higher than they were last year, but we are effectively managing through that cost pressure.
When you add it up, in the fourth quarter, we expect to generate record consolidated operating profit and expand operating margin year over year.
While we are laser-focused on peak, our business doesn't end on December 31st.
Later this week, we will release our U.S. general rate increase.
The 2022 increase will be 5.9%, reflecting the value of the services we offer and cost inflation pressures.
The details will be posted to ups.com.
As we move ahead, we will continue to execute by leveraging our global Smart Logistics Network, our amazing UPSers, and a strategy that's driving strong financial results today and positions us well for the future.
In my comments today, I will cover four areas, starting with a macro overview, then our third-quarter results.
Next, I'll review cash and shareowner returns.
And lastly, I'll wrap up with some comments on our outlook for the full year.
Let's start with the macro.
In the third quarter, the global economy continued its strong growth despite the dampening effects of COVID-19 and inflation, along with shortages in inventory and labor.
Within this backdrop, demand for our services remained high and the pricing environment in the industry was firm.
We expect similar dynamics in the fourth quarter, and as we demonstrated in the third, we will continue to execute our strategy and capture profitable growth opportunities in the market.
IHS is forecasting fourth-quarter global GDP will grow 3.8% and U.S. GDP is expected to grow 4.9%, which remain above historic GDP growth rates.
Moving to our third-quarter consolidated performance.
The progress we've made to improve revenue quality enhance productivity and allocate capital is driving strong top and bottom line results.
Consolidated revenue increased 9.2% to $23.2 billion.
Consolidated operating profit totaled $3 billion, 23.4% higher than last year.
All three segments generated record third-quarter operating profit and achieved double-digit operating margins in the quarter.
Consolidated operating margin expanded to 12.8%, which was 150 basis points above last year, and diluted earnings per share was $2.71, and up 18.9% from the same period last year.
Now let's take a look at the segments.
Our results in U.S. domestic were better than we anticipated principally due to higher than planned for improvements in revenue per piece and productivity gains.
As we expected, average daily volume in the U.S. was down 540,000 pieces or 2.7% due to a decline in SurePost of 576,000 packages per day.
This decline was partially offset by growth in ground commercial volume.
Our results reflect the continued execution of our strategy to win in the most attractive parts of the market.
In fact, customer mix continued to be positive as higher-yielding SMB average daily volume, including platforms, was up 10.9%.
And in the third quarter, SMBs made up 27.4% of U.S. domestic volume, compared to 23.6% last year.
Regarding our delivery mix, our commercial business continued to recover and grew 6.8%, representing 42% of our volume in the third quarter, compared to 39% in the third quarter of last year.
Nearly all industry sectors grew B2B average daily volume, including retail and high tech.
For the quarter, U.S. domestic generated revenue of $14.2 billion, up 7.4%, driven by a 12% increase in revenue per piece with fuel driving 270 basis points of the revenue per piece growth rate.
Total expense grew 5.8% and with fuel driving 180 basis points of the year-over-year expense growth rate.
Through our focus on productivity, overall improvements, led by our inside sort operations and on-road activities, helped offset the market rate adjustments we implemented in certain geographies, as well as the cost of expanding Saturday delivery.
And as Carol mentioned, a key measure of UPS productivity is pieces per hour.
And in the third quarter, we made improvements in nearly every area of our operations, led by preload, which improved by 6.5%.
Combined, these improvements contributed to a decrease in direct labor hours per day of 5.1%.
In summary, revenue growth was above expense growth, which generated positive operating leverage.
The U.S. Domestic segment delivered $1.4 billion in operating profit, an increase of $281 million or 24.8% compared to last year, and operating margin expanded 140 basis points.
The segment continues to generate strong profit growth, driven by the execution of our strategy.
Due to tough year-over-year comparisons and some supply chain disruptions, growth in average daily volume moderated in the third quarter and was up 1.9%.
B2B average daily volume grew 3.8% on a year-over-year basis and offset a decline in B2C volume, which was down 2.3%.
On a two-year stack, total average daily volume was up 14%.
Total export average daily volume was up 1.3% on a year-over-year basis.
Export growth in Europe and the Americas offset a 4.8% decrease in export average daily volume out of Asia.
The decline in Asia was due to difficult comps from a year ago and the implementation of network contingency plans in response to COVID-19 protocols at select airports.
Relative to our plan, we had 137 fewer flights out of Asia than we anticipated.
For the quarter, international revenue was up 15.5% to $4.7 billion with strong growth across all regions.
Revenue per piece was up 14%, including a 500 basis point benefit from fuel.
Revenue quality improved on a year-over-year basis as we continue to utilize surcharges to match demand with available capacity.
In the third quarter, international delivered its fourth consecutive quarter of profits over $1 billion.
Operating profit was $1.1 billion, an increase of 14%, and operating margin was 23.5%.
Now looking at supply chain solutions.
The segment delivered record third quarter top and bottom line results as the team executed exceptionally well in a dynamic environment.
Revenue increased 8.4% to $4.3 billion with all major business categories contributing to profit growth.
Market demand remained elevated with a couple of key profit drivers.
In forwarding, capacity constraints, and consumer demand in the market drove volume growth in air freight forwarding and strong yields in our ocean freight product, which drove top and bottom line results.
And in logistics, revenue and operating profit grew by double digits led by our healthcare portfolio.
In the third quarter, supply chain solutions generated record operating profit of $448 million, and the operating margin was an impressive 10.5%.
As a reminder, this is our first full quarter without UPS freight results, given that we closed the sale on that business on April 30th of this year.
Walking through the rest of the income statement, we had $177 million of interest expense.
Other pension income was $285 million.
And lastly, our effective tax rate came in at 22.3%, which was lower than last year due to favorable changes in jurisdictional tax rates and discrete items.
Now let's turn to cash on the balance sheet.
We are generating strong cash flow from our disciplined focus on capital allocation and growth in net income.
So far, in 2021, we have generated a record $11.8 billion in cash from operations and $9.3 billion in free cash flow.
And in the first nine months of this year, UPS has distributed $2.6 billion in dividends.
In August, we announced a $5 billion share repurchase plan.
with the intent to repurchase $500 million of shares in 2021, which we completed in the third quarter.
We expect to execute the remainder of the program over the next few years.
Now I'll make a few comments regarding the full-year outlook.
We are continuing to pay close attention to and manage through several external factors, including COVID-19, inflationary pressures, and inventory and labor shortages.
Despite these challenges, consumer demand is expected to be strong during peak season and in the fourth quarter.
Due to our third-quarter outperformance, combined with the progress we are making with our strategic initiatives, and our increased fourth-quarter plan, we are raising our full-year guidance.
On a consolidated basis, we expect full-year 2021 revenue growth of around 13.8% year over year, which takes into account the divestiture of UPS freight.
Additionally, consolidated operating margin should be around 13%.
In U.S. domestic, we anticipate full-year 2021 revenue growth of about 12.7% with revenue growing faster than volume.
We anticipate the full-year 2021 U.S. operating margin will be around 10.5%.
As you update your models for the U.S. domestic segment, there are a couple of things to keep in mind as we get into the fourth quarter.
First, as usual, enterprise and B2C volume will represent a larger percentage of our total volume due to peak when compared to the rest of the year.
And second, we are lapping more than $550 million in peak season surcharges in addition to the early customer pricing actions we implemented last year as a part of our revenue quality initiatives.
As a result, we expect the sequential revenue per piece growth rate to moderate in the fourth quarter.
Moving to the international segment.
We expect full-year revenue growth of around 20.7%, with an operating margin of about 23.9%.
And in the supply chain solutions segment, we anticipate full-year revenue growth of around 10.3% and operating margin of about 10%.
Additionally, for the full year in 2021, we expect free cash flow to be around $10.5 billion, and return on invested capital will be around 29%.
Capital expenditures are now expected to be approximately $4.2 billion.
And lastly, our effective tax rate for the full year is expected to be about 22.5%.
As I wrap up, the economic outlook and the effects of our revenue quality and productivity initiatives are putting us well on our way to achieving the high end of our 2023 targets that I shared with you in June.
We are executing our strategy under the better, not bigger framework, and delivering on our commitments despite a very dynamic environment.
We are laser-focused on improving revenue quality, reducing our cost to serve, and remaining disciplined on capital allocation to improve the experience for our customers and our people and the financial performance of our company.
And operator, please open the lines.

user
compname reports q3 adjusted earnings per share of $2.71.
q3 adjusted earnings per share $2.71 .
ups releases 3q 2021 earnings.
ups - raises full-year 2021 financial guidance.
q3 revenue rose 9.2 percent to $23.2 billion.
ups qtrly consolidated revenues of $23.2b, up 9.2% from last year.
ups qtrly gaap results include after-tax transformation and other charges of $54 million, equivalent to $0.06 per share.
ups - fy capital expenditures are now planned to be approximately $4.2 billion.
ups - expects fy adjusted return on invested capital to be around 29%.

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