United Parcel Service, Inc.

Good morning. My name is Stephen, and I will be your facilitator today. I would like to welcome everyone to the UPS Investor Relations fourth quarter 2021 earnings conference call. All lines have been placed on you to prevent any background noise, and after the speaker's remarks, there will be a question and answer period. Any analyst that wants to ask a question, now is the time to press the one, then zero on your telephone keypad. It is now my pleasure to turn the floor over to our host, Mr. Scott Childress, Investor Relations Officer. Sir, the floor is yours.

Good morning and welcome to the UPS fourth quarter 2021 earnings call. Joining me today are Carol Tomei, our CEO, and Brian Newman, our CFO. Before we begin, I want to remind you that some of the comments we'll make today are forward-looking statements. within the federal securities laws and address our expectation for the future performance or operating results of our company. These statements are subject to risk and uncertainties, which are described in our 2020 Form 10-K, subsequently filed Form 10-Qs, and other reports we file with or furnish to the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC. For the fourth quarter of 2021, GAAP results include a non-cash after-tax mark-to-market pension charge of $14 million and after-tax transformation and other charges of $45 million. The after-tax total for these items is $59 million, an impact of fourth quarter 2021 EPS of 7 cents per diluted share. The mark-to-market pension charge of $14 million represents losses recognized outside of a 10% corridor on company-sponsored pension and post-retirement plans. Additional detail regarding year-end pension charges are included in the appendix of our fourth quarter 2021 earnings presentation that will be posted to the UPS investor relations website later today. Unless stated otherwise, Our comments will refer to adjusted results, which exclude year-end pension charges and transformation and other charges. The webcast of today's call, along with the reconciliation of non-GAAP financial measures, is available on the UPS Investor Relations website. Following our prepared remarks, we will take questions from those joining us via teleconference. If you wish to ask a question, press 1, then 0 on your phone to enter the queue. Please ask only one question so that we may allow as many as possible to participate. You may rejoin the queue for the opportunity to ask an additional question. And now I'll turn the call over to Carol.

Thank you, Scott, and good morning. What an incredible year it's been at UPS. Let me begin by recognizing the efforts of our amazing UPSers, 534,000 strong around the world. Not only did our team once again provide industry-leading service during peak, but over the last year, we delivered 1.1 billion COVID-19 vaccine doses with 99.9% on-time service. I'm so very proud of our team and what we've accomplished. The external environment is challenging due to the ongoing impacts of the pandemic, labor tightness, upstream supply chain jams and rising inflation. But inside our better not bigger framework, we are maniacal about controlling what we can control. We are laser focused on improving revenue quality, reducing our cost to serve, and allocating capital in a disciplined fashion. This is enabling us to move faster and to be more agile so that we capture the best opportunities in the market, enhance the customer experience, and continuously improve our financial performance. Looking at the fourth quarter, our results exceeded our expectations, driven by improved revenue quality across all three of our business segments and significant gains in productivity. Consolidated revenue rose 11.5% from last year to $27.8 billion, and operating profit grew 37.7% from last year to $4 billion. This is the highest quarterly operating profit in the company's history. And for the full year 2021, our business delivered record financial results. Consolidated revenue increased 15% to reach $97.3 billion. And operating profit totaled $13.1 billion, 50.8% higher than last year. We generated $10.9 billion in free cash flow more than double the amount generated in the prior year. And diluted earnings per share were $12.13, an increase of 47.4%. In a moment, Brian will provide more detail about our financial results. At our June Investor and Analyst Day, I said intent is not a strategy, and vision without action is just a dream. At UPS, we are acting on our customer-first, people-led, innovation-driven strategy as we transform nearly every aspect of our business. Starting with customer-first, as we've discussed, we are focused on growing in the parts of the market that value our end-to-end network, including B2B, healthcare, SMBs, and large enterprise accounts. In 2021, Our SMB average daily volume grew 18% and represented 26.8% of our total U.S. volume, putting us on track to achieve our 2023 target of more than 30%. Our digital access program, or DAP, makes it easy for SMBs to access UPS services, and it's an important driver of our SMB growth. In 2020, I challenged the team to turn DAP into a billion-dollar business. In 2021, DAP generated $1.3 billion in revenue. Looking ahead, we expect DAP to reach more than $2 billion in 2022 as we add new partners and expand to additional countries. S&P opportunities outside of the U.S. are tremendous. And in the fourth quarter, our international SMB revenue growth rate was 18%. As we expand DAP, grow with SMBs across Europe, and introduce new partnerships, we expect to gain overall SMB revenue share faster than the market growth. Healthcare is another market we are focused on. And in 2021, our healthcare portfolio reached more than $8 billion in revenue. Here, we serve complex customers with our global footprint of healthcare facilities and cold chain solutions. Our healthcare expertise and end-to-end solutions are unmatched in the industry, and we are well on our way to hitting our $10 billion revenue target for 2023. And amid the bottlenecks and uncertainty, our supply chain solutions group is providing customers supply chain flexibility, and resiliency through alternative routings and solutions. Demand for forwarding products continued to be strong in the fourth quarter. In fact, ocean shipments were up double digits, and container rates remain elevated in the market. Now, from an experience perspective, customer first is about providing a frictionless end-to-end customer experience. We are attacking the biggest pain points first. and over the last several months have rolled out improvements to the digital experience in pickup, claims, and UPS.com. You may not know this, but we generate over $9 billion in gross revenue annually from transactions on our global website. We redesigned a U.S. site in 2021 and saw site visits grow 100-fold with an equally impressive growth in monthly page views. up from 10,000 in January to 600,000 in December. We've got more plans to improve the UPS.com experience around the world, which should lead to higher revenue and better customer satisfaction. We know it will take time to move the needle on our Net Promoter Score, which stands at 30, but we set a target of 50 and have laid out a path to get there. Moving to the second element of our strategy, People Led, Here we focus on the employee experience and making UPS a great place to work. We measure our performance by how likely an employee is to recommend others to work at UPS. When I became CEO in 2020, our likelihood to recommend metrics stood at 51% globally, and our goal is to surpass 80%. We've made great strides, gaining 10 percentage points to finish 2021 at 61%. And now to the last leg of our strategic platform. Innovation driven is at the heart of what we do. Our global smart logistics network, powered by technology developed by UPS engineers, enabled us to deliver another successful peak. It may have been our hardest peak ever. We had higher volume than we expected at the beginning of the quarter and lower volume at the end. but our sales, engineering, and operating teams remained agile and pivoted with changes in global market conditions and the needs of our customers. We delivered excellent service levels, avoided chaos costs, and improved efficiency in the network. In fact, productivity in our U.S. operations improved by 1.7% for the fourth quarter, as measured by pieces per hour. Progress on the innovation-driven element of our strategy is all about driving higher returns on invested capital. As Brian will detail, in 2021, we reversed a multi-year downward trend in this metric and delivered a return on invested capital of 30.8%, 910 basis points above 2020. We remain disciplined in our capital allocation priorities and commitments. In regard to capital expenditures, we are increasing our investments back into the business to drive innovation and growth. We just started the first phase of what we're calling Smart Package, Smart Facility, which over time will put RFID tags on all of our packages. This initiative will enhance customer experience while improving UPS productivity by eliminating millions of manual scans every day. Brian will share more detail on our CapEx plans during his remarks. In June, we told you we were going to target a dividend payout ratio at year end of 50% of adjusted earnings per share. And we're doing just that. Today, the UPS Board approved a 49% increase in the quarterly dividend from $1.02 per share to $1.52 per share. This represents the largest quarterly dividend increase in our company's history. Our strategy is building a solid foundation for our business and enabling agility. While we expect 2022 to be another challenging year, we've got momentum. So let me end by sharing our 2022 financial goals. Building on the record results we delivered last year, we anticipate delivering our 2023 consolidated revenue and operating margin targets one year ahead of our plan. In 2022, consolidated revenues are expected to be about $102 billion. Operating margin is expected to be approximately 13.7%, and return on invested capital is anticipated to be above 30%. Brian will provide more details on our outlook. I'm excited about the many opportunities in front of us. And with that, I'll turn the call over to Brian.