10-QPeriod: Q1 FY2021

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2021

Filed May 5, 2021For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) reported a strong first quarter for 2021, with significant increases in revenue, operating profit, and net income compared to the same period in 2020. The company's revenue surged by 27.0% to $22.9 billion, driven by robust volume growth, particularly in business-to-consumer (B2C) shipments due to sustained e-commerce activity. This surge in demand across all segments – U.S. Domestic Package, International Package, and Supply Chain & Freight – translated into substantial operating profit growth of 157.9%. Net income experienced a remarkable increase of 396.6%, reaching $4.8 billion, equating to diluted earnings per share of $5.47. A notable contributor to this significant increase in net income was a substantial pension mark-to-market gain of $2.5 billion (after-tax), largely due to the American Rescue Plan Act. Excluding this one-time gain and other adjustments, adjusted diluted earnings per share was $2.77, still indicating strong underlying operational performance. The company also successfully completed the divestiture of its UPS Freight business on April 30, 2021. Despite increased operating expenses, largely driven by higher compensation and benefits, purchased transportation, and fuel costs associated with the increased volume, UPS demonstrated improved operating margins across all segments. The company's strong cash flow from operations and solid liquidity position provide confidence in its ability to fund ongoing operations and strategic initiatives.

Financial Highlights

54 data points
Beta

Revenue

$22.91B

Net Income

$4.79B

20.9% Net Margin

EPS (Diluted)

$5.47

Total Assets

$63.31B

Cash & Equivalents

$7.73B

Free Cash Flow

$3.70B

Financial Statements
Beta
Revenue$22.91B
Operating Expenses$20.14B
Operating Income$2.77B
Interest Expense$177.00M
Net Income$4.79B
EPS (Basic)$5.50
EPS (Diluted)$5.47
Shares Outstanding (Basic)872.00M
Shares Outstanding (Diluted)876.00M

Key Highlights

  • 1Revenue increased by 27.0% to $22.9 billion year-over-year, driven by a 14.3% increase in average daily package volume.
  • 2Operating profit more than doubled, increasing by 157.9% to $2.8 billion, with operating margins expanding significantly from 5.9% to 12.1%.
  • 3Net income saw a substantial increase of 396.6% to $4.8 billion, or $5.47 per diluted share, boosted by a significant pension mark-to-market gain.
  • 4Adjusted diluted EPS (excluding the pension gain and other items) was $2.77, indicating strong operational performance.
  • 5All operating segments (U.S. Domestic Package, International Package, and Supply Chain & Freight) reported revenue and operating profit growth.
  • 6The divestiture of the UPS Freight business was completed on April 30, 2021.
  • 7Company maintained strong liquidity with $8.1 billion in cash, cash equivalents, and marketable securities as of March 31, 2021.

Frequently Asked Questions

The substantial increase in net income was primarily driven by a significant pre-tax mark-to-market gain of $3.3 billion ($2.5 billion after-tax) related to the company's pension and postretirement defined benefit plans. This gain was largely a result of the American Rescue Plan Act, which provided for special financial assistance to multiemployer pension plans, effectively reducing UPS's potential liability and triggering a remeasurement of its own pension plan. Excluding this one-time event, adjusted net income and earnings per share would present a more normalized view of operational performance.

The divestiture of the UPS Freight business was completed on April 30, 2021, shortly after the quarter ended. During the first quarter of 2021, UPS Freight's results were included in the Supply Chain & Freight segment. In preparation for the divestiture, a valuation allowance of $66 million was recognized against assets held for sale in the first quarter of 2021. The company intends to use the proceeds from the sale to repay outstanding indebtedness. Following the divestiture, the 'Supply Chain & Freight' segment will be renamed 'Supply Chain Solutions'.

Overall revenue growth was primarily fueled by a significant increase in average daily package volume (up 14.3%), driven by sustained e-commerce activity and strong business-to-consumer (B2C) demand. The U.S. Domestic Package segment saw growth in residential ground services. The International Package segment experienced broad-based volume and revenue growth across all customer segments and regions. The Supply Chain & Freight segment's revenue growth was led by its Forwarding and Logistics businesses, benefiting from strong market demand and elevated rates, particularly in air freight.

While operating expenses increased by 18.7% to $20.1 billion, this rise was largely a direct consequence of the substantial volume growth experienced during the quarter. Key drivers included higher compensation and benefits due to increased headcount and union wage increases, increased purchased transportation costs to support the higher volumes and network investments, and higher fuel costs. Despite these increases, UPS was able to expand its operating margins across all segments, indicating effective cost management relative to the revenue generated.