UPS Shreds Fourth-quarter Estimates As Demand Surged

UPS Inc. UPS on Tuesday reported solid fourth-quarter results as delivery demand roared during a holiday shipping season amplified by soaring e-commerce activity as the COVID-19 pandemic raged in the U.S. and most of Europe.

The nation's largest transportation company also reported all-time annual records for revenue at $84.2 billion and adjusted diluted earnings per share of $8.23.

On an adjusted diluted basis, UPS posted a fourth-quarter gain of $2.66 a share, way above consensus estimates that ranged between $2.10 and $2.14 a share. The adjusted EPS figures were 55 cents per share higher than the adjusted 2019 results, equating to a 26.1% year-on-year gain, Atlanta-based UPS said.

After adjustments and dilution, UPS reported a fourth-quarter loss of $3.75 a share. The adjustments included a $4.9 billion noncash charge for pension-related changes; a $545 million after-tax impairment change for selling its UPS Freight less-than-truckload operation to Canadian company TFI International, Inc. TFI  for $800 million in cash; and a $114 million after-tax charge for UPS' ongoing multiyear project to reengineer its massive distribution network to handle more business-to-consumer (B2C) traffic resulting from online orders.

The fourth-quarter 2020 adjustments totaled $5.6 billion, equal to $6.38 per diluted share, according to UPS. Adjustments for the 2019 fourth quarter were about $1.9 billion, UPS said.

Fourth-quarter 2020 revenue rose 21% to $24.9 billion, with double-digit growth across all of its three main segments, UPS said. On an adjusted basis, operating income rose 26% to $2.2 billion, the highest quarterly operating profit in the company's 114-year history.

Adjusted operating margin at UPS' core domestic U.S. segment rose 8.8%. Revenue per piece rose 7.8%, driven by ground residential traffic. Revenue at the company's international segment rose 26.8%, led by gains in Asia and Europe. Adjusted operating margin jumped 24.3%, while average daily volumes increased 21.9% with export growth across all regions, UPS said.

Revenue at UPS' Supply Chain and Freight segment rose 29%. UPS singled out Asian export freight forwarding and its health care businesses as strong contributors. UPS Freight, which is expected to be out of the portfolio by midyear, falls within the Supply Chain and Freight segment.

For 2020 as a whole, revenue rose 14.2%, adjusted operating profit rose 7% to $8.7 billion, and free cash flow hit $5.1 billion, UPS said.

In a brief comment, UPS CEO Carol Tomé said the fourth-quarter results "exceeded our expectations" and that she was optimistic about the outlook for 2021. The company has set 2021 capital expenditures at $4 billion, well below the $5.6 billion spent, on an adjusted basis, in 2020. The lower 2021 projection is likely to reflect Tomé's goal of more efficient capital allocation and her oft-stated mantra of the company being "better, not bigger."

The company provided no full-year guidance beyond the capex forecasts. In premarket trading Tuesday, shares were up 3.7% at $162 a share.