Better not bigger approach fuels profit growth across all segments

Carol B. Tomé shares UPS’s record financial results
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UPS announced profit growth across all segments and record financial results for the second quarter of 2021.

Consolidated revenue in the quarter rose 14.5% from last year to $23.4 billion and operating profit grew 40.8% to $3.3 billion.

Read the press release for complete results.

UPS CEO Carol B. Tomé began the investor call by thanking UPSers for their hard work and efforts.

“Our better not bigger framework is enabling consistently high service levels and producing improved financial results,” Carol said. “Our team is truly moving our world forward by delivering what matters.”

Carol also laid out the quarter’s accomplishments around the company’s Customer First, People Led, Innovation Driven strategy.

Customer First

Customer First is about creating a frictionless customer experience and building the capabilities that matter the most to UPS customers.

Saturday Ground delivery volume grew 13% as UPS continued expanding weekend coverage.

“This is an example of better not bigger as we are expanding service with very little capital spending,” Carol said.

By the end of October, UPS will cover about 90% of the U.S. population on Saturdays, further extending UPS’s market-leading Saturday commercial delivery and pickup services and supporting ongoing Sunday delivery services.

These improvements benefit all UPS customers, large and small, by enabling faster time in transit and expanding capacity.

“As we execute our strategy, our focus is on growing value share,” Carol said.

And the strategy is working. In the U.S., UPS grew small and medium-sized business (SMB) average daily volume, including platforms, 21.6% and saw total U.S. revenue per piece increase 13.4%.

Healthcare customer revenue on a global basis grew 19.8% and contributed to margin expansion in all three segments.

New capabilities like UPS Cold Chain Solutions and the expansion of UPS Premier to Canada and Europe are advancing UPS’s leadership position in the global healthcare logistics market.

UPS is also improving the customer experience across 16 journeys to make them simpler and more helpful. So far, improvements to the claims process have shortened processing times from 20 days to five and reduced customer churn.

People Led

“Our focus here is to make UPS a great place to work so our people feel confident recommending UPS to others,” Carol said.

In the second quarter, UPS’s executive leadership team spent time visiting operations around the world, delivering packages, walking the facilities and talking with employees.

What they brought back was a list of actions to simplify processes, increase productivity and improve the work environment.

“People Led builds on a strong foundation and we will continue living our values, modernizing our policies and rewarding our people to make UPS an even better place to work and an employer of choice,” Carol said.

Innovation Driven

UPS’s disciplined approach to capital allocation is generating significant levels of free cash flow. In fact, in the first six months of this year, UPS generated a record $6.8 billion in free cash flow.

“We’ve generated more free cash flow in the first six months of this year than we previously generated in any full year, at any time in our company’s history,” Carol said.

UPS completed the divestiture of UPS Freight, a capital-intensive, low-returning part of the business. This and other actions greatly improved UPS’s financial condition from one year ago. The company expects to see a significant increase in return on invested capital this year.

Looking ahead

“We are a purpose-driven company and we are investing in the capabilities that matter most to our customers to create value for our shareowners,” Carol said.

Watch Carol’s interview with CNBC Mad Money for a discussion of the market’s reaction to second-quarter earnings.

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