10-KPeriod: FY2020

UNITED PARCEL SERVICE INC Annual Report, Year Ended Dec 31, 2020

Filed February 22, 2021For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported significant revenue growth in 2020, driven primarily by a substantial increase in business-to-consumer (B2C) shipping, fueled by e-commerce expansion accelerated by the COVID-19 pandemic. While total revenue increased by 14.2% to $84.6 billion, operating expenses also rose by 16.1%, leading to a slight decrease in operating profit and a significant decline in net income. This was largely attributed to increased compensation and benefits, higher purchased transportation costs, and transformation strategy costs. A notable event was the announcement of the divestiture of the UPS Freight business, expected to close in Q2 2021, which resulted in a goodwill and asset impairment charge of $686 million. The company also experienced a substantial increase in pension and postretirement benefit obligations, largely due to lower discount rates. Despite challenges, UPS highlighted strategic progress in its SMB, healthcare, and international market initiatives. Looking ahead, UPS is focused on its "Customer First, People Led, Innovation Driven" strategy, aiming to enhance customer experience, optimize its network, and drive growth in key areas. The company's financial position remained solid, with ample liquidity, although it suspended share repurchases. Investors should monitor the impact of ongoing e-commerce trends, labor costs, and the successful integration and strategic execution of its transformation initiatives, including the divestiture of UPS Freight.

Financial Highlights

54 data points
Beta

Revenue

$84.63B

Net Income

$1.34B

1.6% Net Margin

EPS (Diluted)

$1.54

Total Assets

$62.41B

Cash & Equivalents

$5.91B

Free Cash Flow

$5.05B

Financial Statements
Beta
Revenue$84.63B
Operating Expenses$76.94B
Operating Income$7.68B
Interest Expense$701.00M
Net Income$1.34B
EPS (Basic)$1.55
EPS (Diluted)$1.54
Shares Outstanding (Basic)867.00M
Shares Outstanding (Diluted)871.00M

Key Highlights

  • 1Total revenue grew by 14.2% to $84.6 billion in 2020, driven by a significant increase in B2C e-commerce volume.
  • 2Operating expenses increased by 16.1%, outpacing revenue growth and leading to a 1.5% decrease in operating profit ($7.7 billion).
  • 3Net income saw a significant decline of 69.8% to $1.3 billion, impacted by transformation strategy costs and large pension mark-to-market charges.
  • 4The company announced the divestiture of its UPS Freight business in January 2021, recognizing a $686 million impairment charge in 2020.
  • 5Average daily package volume increased by 12.8%, with residential volume representing 64% of total volume, up from 54% in 2019.
  • 6Total capital expenditures were $5.4 billion, down from $6.4 billion in 2019, with a focus on network improvements and technology.
  • 7Share repurchases were suspended in April 2020; the company maintained its quarterly dividend, increasing it slightly to $1.02 per share.

Frequently Asked Questions

The primary driver of UPS's revenue growth in 2020 was the substantial increase in business-to-consumer (B2C) shipping volumes, fueled by the acceleration of e-commerce, largely attributed to the impact of the COVID-19 pandemic. This shift increased the proportion of residential deliveries significantly.

Net income decreased significantly due to several factors, including transformation strategy costs of $265 million, large pension mark-to-market losses totaling $4.9 billion, and a goodwill and other asset impairment charge of $686 million related to the planned divestiture of UPS Freight. These items, combined with increased operating expenses that outpaced revenue growth, compressed profitability.

UPS is divesting its UPS Freight business to focus more on its core package delivery and supply chain solutions segments, which are considered to drive greater value for shareholders. The company anticipates this divestiture will improve its operating margin and return on invested capital.

UPS's pension and postretirement benefit obligations increased substantially in 2020, primarily due to a significant decrease in discount rates used for actuarial valuations. The company also made substantial discretionary contributions to its U.S. pension plans to improve their funded status.