UPS Reports Q4 2022 Results: Lower Q4 2022 Volumes, Improving Margins; Bumpy 2023

* Q4 Volume declined more than expected.

September / October hit expectations.

Surge in Cyber Week beat expectations.

Post Cyber-week missed expectations by a wide margin.

B2C avg daily volume declined 3%, B2B declined 5% due to mfg/distribution declines

Consumers returned to pre-pandemic shopping behaviors. Holiday retail sales lower than expected.

2022 4Q

* Revenue down 2.7% y/y, operating profit declined 3.4%.

* Revenue quality initiatives offset volume decline, operating margin down 10bps

* 3.8% average daily volume decline y/y, half due to Amazon (more later)

2022 4Q US

* SMB now 26.5% US daily volume, up 70 bps

* Revenue per parcel increased 7.2%

* US domestic operating profit

2022 Q4 intl

* Asia export declined 10%

* Intl Revenue down 8.3%

* Revenue per parcel flat

2022 Full Year

* Revenue increased 3.1% to $103B, increasing $3.1B over 2021 but missed target by 2% mostly due to stronger dollar

* Operating Profit 5.4% higher than last year to $13.9B

* US operating margin expanded to 12.8%, best in 10 years.

* ROIC increased 50bps

Amazon

* Amazon volume expected to decline another 40 bps in 2023, declined faster than expected in 2022.

2023 Outlook

* Bumpy. Rising interest rates, inflation, at least mild recession.

* Anchored to 2023 S&P Global economic forecast

* two scenarios (1) base case, and (2) conservative

** (1) base case: mild recession in first half, moderate recovery in second half. Average daily volume down on negotiated amazon declines, offset by SMB growth.

** (2) conservative: mid-single digit declines in average daily volume, weaker demand in asia first half, slower recovery in europe second half.

2023 Plans

* Digital Access Program (DAP) expanding internationally

* Adding 2.3M in Healthcare logistics warehouse space (½ US, ½ EU). Very high margin business.

Other 2022 notables

* Acquired Bomi group, Delivery Solutions. Invested in CommerceHub.