2023 is going to be a year of resilience for United Parcel Service (UPS), according to Chief Executive Officer Carol Tome. “What does resilience mean? It means we will plan conservatively and pivot quickly. It means we will balance defensive and offensive mode and it means we will execute what we call our wildly important initiatives.
“Specifically, we will balance efficiency moves with growth opportunities. Think of that as better and bolder. We will stop certain initiatives and accelerate others thereby increasing investment in our business. Relative to 2022, we are increasing our 2023 expense and capital budget by over $900 million. Finally, we will focus on three widely important initiatives – improving the customer value proposition, increasing talent development and employee engagement, and leveraging our physical network with our digital platform to drive logistics-as-a-service,” Tome said last week during an analysts call after Q42022 results were announced.
UPS reported a 3 percent decline in Q42022 revenue at $27 billion on 3 percent increase in domestic package revenue and 8 percent drop in international package revenue. Consolidated operating profit was $3.2 billion, down 17.9 percent compared to the fourth quarter of 2021, and down 3.3 percent on an adjusted basis.
For the full year 2022, consolidated revenue increased 3 percent to $100.3 billion and adjusted operating profit was up 5 percent at $13.9 billion. The company returned $8.6 billion of cash to shareowners through dividends and share buybacks.
“For the past two and a half years, we have fundamentally improved nearly every aspect of our business, and we’re just getting started,” says Tome. “Uncertainty creates opportunity, and this team has proven that it’s up for the challenge.”
Focus on digital
Tome highlighted the success with Digital Access Programme (DAP) “making it easier for SMB customers to do business with UPS. In 2022, we generated more than $2.3 billion in DAP revenue exceeding our targets. We expect the momentum to continue and plan to generate around $3 billion in global DAP revenue in 2023.”
Dynamic pricing gained momentum at UPS with the launch of Deal Manager in 2022. “Deal Manager digitises the pricing process, and applies pricing science to present the right offer to our SMB customers the first time, so we are able to close deals faster and with better revenue quality. In 2022, our U.S. win rate with Deal Manager was 22 percentage points higher than the baseline. So we are moving quickly to expand access to Deal Manager to more than 40 countries in 2023,” says Tome.
Healthcare to be $10bn biz
The healthcare portfolio of UPS reached $9.2 billion, and “our goal is to become the number one complex healthcare logistics provider in the world. Today, we have nearly 17 million square feet of healthcare compliance distribution space globally, with leading cold chain logistics capabilities. In 2023, we expect our healthcare portfolio to generate more than $10 billion in revenue,” says Tome.
UPS is now selling more into biologics and some of the developing treatments, adds Kate Gutmann, EVP, International, Healthcare and Supply Chain Solutions. “So that continues to fuel us for future growth. We’ve seen double-digit growth, and we’re planning for double-digit growth this year as well with very strong margins.”
Amazon biz to slide
UPS finished 2022 with Amazon accounting for 11.3 percent of its business, according to Newman, down from 11.7 percent in 2021 – “a dcline of about 40 basis points. We’ll continue on a mutually agreed path to glide that business down in 2023, and that’s factored into our guide. So we feel good about being able to manage that down.”
Tome clarified that the planned decline to 11 percent by 2022 was impacted by foreign exchange. “FX impacted our top line by $1.3 billion. So having not had the pressure on the top line, the percentage would have been different.”
A new growth platform – logistics-as-a-service – was created in 2022, Tome says “which combines digital capabilities with our best-in-class global integrated network. Under this platform, we launched our Delivery Density Solution, where we continue to add customers and are seeing positive results.”
For the full year 2023, UPS expects revenue to be between $97-99.4 billion, capital expenditures to be about $5.3 billion, dividend payments to be around $5.4 billion and share repurchases to be around $3 billion.
UPS expects 2023 to be a bumpy year “due to rising interest rates, decades high inflation, recession forecasts, a war in Eastern Europe, Covid disruptions in China, and our U.S. labour negotiations,” says CFO Brian Newman.”While we anchor our plans to S&P Global economic forecasts, we have developed multiple plans scenarios that will help us quickly pivot in an uncertain macro environment.”
More than half of the operating profit is coming in the second half of the year, adds Newman.