10-QPeriod: Q1 FY2022

UNITED PARCEL SERVICE INC Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 4, 2022For Securities:UPS

Summary

United Parcel Service (UPS) reported its first-quarter 2022 financial results, highlighting revenue growth driven by strong performance in its U.S. Domestic and International Package segments. Despite a decrease in average daily package volume, the company achieved higher revenue per piece due to strategic pricing adjustments, including fuel surcharges and base rate increases. This focus on revenue quality helped offset the volume declines and contributed to an increase in operating profit and margin for the U.S. Domestic segment. However, the company faced a challenging operating environment characterized by global inflation, rising energy prices, and supply chain disruptions, particularly impacting its International Package segment and certain operations in Asia. Net income and earnings per share saw a significant decrease year-over-year, largely due to a substantial gain recognized in the prior year's first quarter from a defined benefit plan remeasurement. Looking ahead, UPS anticipates continued cost pressures but expects improving volume growth in the latter half of 2022.

Financial Highlights

54 data points
Beta

Revenue

$24.38B

Net Income

$2.66B

10.9% Net Margin

EPS (Diluted)

$3.03

Total Assets

$70.11B

Cash & Equivalents

$12.21B

Free Cash Flow

$3.93B

Financial Statements
Beta
Revenue$24.38B
Operating Expenses$21.13B
Operating Income$3.25B
Interest Expense$174.00M
Net Income$2.66B
EPS (Basic)$3.05
EPS (Diluted)$3.03
Shares Outstanding (Basic)874.00M
Shares Outstanding (Diluted)879.00M

Key Highlights

  • 1Revenue increased by 6.4% to $24.4 billion, driven by strong revenue per piece growth across segments.
  • 2Operating profit increased by 17.6% to $3.3 billion, with operating margin improving to 13.3% from 12.1% in the prior year.
  • 3U.S. Domestic Package segment saw an 8.0% revenue increase, driven by higher average revenue per piece, despite a 3.0% decrease in average daily volume.
  • 4International Package segment revenue grew by 5.8%, with average revenue per piece up 10.5%, primarily due to fuel surcharges and pricing adjustments, though volume declined by 6.7%.
  • 5Supply Chain Solutions revenue grew 2.0%, but this was largely offset by the prior year's divestiture of UPS Freight.
  • 6Net income decreased by 44.4% to $2.7 billion, and diluted EPS fell to $3.03 from $5.47, largely due to a significant prior-year benefit from a defined benefit plan remeasurement.
  • 7The company repurchased $254 million of common stock and paid $1.3 billion in dividends in the first quarter of 2022.

Frequently Asked Questions

The decrease in net income and diluted EPS was primarily due to a large pre-tax mark-to-market gain of $3.3 billion recognized in the first quarter of 2021 related to the UPS/IBT Full-Time Employee Pension Plan. This gain significantly boosted the prior year's net income, making the year-over-year comparison appear lower in the current period.

UPS is primarily managing rising fuel costs through fuel surcharges that are adjusted weekly based on energy prices. These surcharges are applied to domestic and international package services. The company also adjusts rates for its freight brokerage services and expects surcharges to remain elevated.

UPS anticipates that average daily volume growth will be negative in the first half of 2022 but expects it to improve in the second half of the year. This outlook is influenced by challenging global economic conditions, inflation, supply chain disruptions, and a shift in consumer spending patterns.

Operating expenses have increased primarily due to higher fuel costs, purchased transportation, and compensation and benefits. UPS is implementing strategies to offset these increases through revenue quality initiatives, including base rate adjustments and fuel surcharges, and continuing its transformation strategy to improve efficiency.