The fourth quarter 2021 and full year 2021 results were impressive, with revenue up 11.5% year-on-year at $27.8bn whilst “consolidated adjusted” operating profit leapt 37.7% to $3.952bn. For the full year UPS saw revenue up 15% and operating profits up 66%. Even allowing for UPS’ complex finances this a good performance and it seems that the prospect is it will continue.
Yet the details of the performance are somewhat surprising. For example, looking at the numbers out of the core US Domestic business, it was the previously benighted ‘B2B’ (business-to-business) segment that drove the business, with a volume growth year-on-year of 8%, in contrast the previously booming B2C (business-to-consumer) which fell by 4.1%. Perhaps this reflects a cooling in the previously red-hot e-retail sector however it has not put UPS off its stride. Rather, UPS has simply upped the revenue per piece by 10.5% leading to a 57% increase in “adjusted” operating profit.
Even more surprisingly there is a similar picture at the International Express business, with average daily volumes falling by 4.8% year-on-year in the fourth quarter, yet adjusted profits were up 24.7%, helped again by a 16.4% increase in revenue per piece.
That said, the decline in B2C volumes should not be overinterpreted as they remain, for example, 17.1% higher than 2 years ago in the international business
The strengthening of business also seems to be continuing at Supply Chain Solutions, but here the circumstances are different. Although UPS has not exploded out the numbers, it did say that freight forwarding saw a 37% jump in revenue and that “operating profits had more than doubled” in the fourth quarter. In the contract logistics part of the supply chain solutions business, the “healthcare portfolio delivered strong profits”. The result was “adjusted” operating profits entering positive territory at $456m, in contrast to Q4 2020’s loss.
These results describe what has been apparent for more or less the past year, that is UPS is able to grow its profits even if underlying demand is not going through the roof. Essentially it has both improved its operations, particularly the ability to right-size capacity, and position itself effectively in the market and thus set its prices effectively.
Source: Transport Intelligence, February 8, 2022
Author: Thomas Cullen