Dear Fellow Shareowners:
2022 was a record year for UPS in many ways. For the first time in our 115-year history, UPS generated more than $100 billion in consolidated revenue. Additionally, our consolidated adjusted operating margin reached 13.8%, the highest in 15 years, and adjusted return on invested capital was 31.3%, up 50 basis points from 2021. We achieved these results, and much more, due to the hard work and efforts of our more than 500,000 employees and the outstanding service they provided to our customers. I continue to be impressed by the resiliency of our people and their commitment to moving our world forward by delivering what matters.
As the calendar year ended, I reflected on 2022 and how much changed during the year. We experienced geopolitical tensions including a war, high global inflation, China’s pivot away from its zero-COVID policy and consumers’ return to pre-pandemic shopping behaviors, all of which meant global supply chains had to continually adjust. But no matter what came our way, we stayed on strategy – Customer First, People Led, Innovation Driven. By executing our strategy and controlling what we could control, we delivered for our customers and shareowners in 2022. Here are some highlights:
- Grew small and medium-sized business (SMB) volume to 28.0% of total U.S. volume, driven by continued expansion of our Digital Access Program (DAP) and the launch of Deal Manager.
- Delivered excellent service to our customers around the globe, anchored by the fifth consecutive year of industry-leading service in the U.S.
- Increased the efficiency of our network by adding our 8th regional hub in the U.S. and implemented Total Service Plan to enable an on-time U.S. network.
- Opened our largest natural gas fueling station within our network and shifted to 100% renewable electricity in both global data centers.
- Launched smart package smart facility RFID label technology in 101 buildings in the U.S.
- Introduced our delivery density solution that uses upstream data to link packages together for last mile delivery, reducing cost in the network.
- Acquired Delivery Solutions and invested in CommerceHub as we combine digital solutions with our integrated physical network.
- Flexed the International network to match volume levels and generated an industry-leading adjusted operating margin.
Added 6.1 million square feet of healthcare-compliant distribution space, including the acquisition of Bomi Group, and expanded UPS Premier to 45 countries to grow faster in global healthcare. Generated $9.0 billion in free cash flow and repaid $2 billion of long-term debt to reach our targeted adjusted debt/EBITDA of 1.4 turns. Returned $8.6 billion to shareowners, a 119% increase above 2021, consisting of $5.1 billion in dividends and $3.5 billion in share buybacks.
CUSTOMER FIRST, PEOPLE LED, INNOVATION DRIVEN
When we say Customer First, we mean it. We are laser-focused on reducing friction in the customer experience by improving how we acquire, engage and support customers, which is enabling us to grow in the most attractive parts of the market. This includes solutions like DAP, which makes it easier for SMBs to do business with UPS. DAP generated more than $2.3 billion in revenue in 2022. During the year we introduced Deal Manager, our digital pricing solution. Deal Manager applies pricing science to present the customer with the right offer the first time, enabling us to close deals faster and with better revenue quality. We are expanding DAP and Deal Manager to countries outside of the U.S., with DAP already available in 42 countries and Deal Manager expanding to more than 40 countries. We track progress in Customer First by improvements in our Net Promoter Score (NPS). In 2022, we made strong gains in 16 customer journeys, including the three most important: negotiate value, reroute a package and resolve a claim. The improvements we saw in our NPS outpaced the competition, and we finished the year at 42, putting us well on our way to our target NPS of 50.
Moving to the People Led part of our strategy, our people are our most valuable asset, and it is important to us that every UPSer views our company as a great place to work. We know that when we take care of our people, they will take care of our customers. In 2022, we invested in our people to equip them with digital fluency skills, and under Total Service Plan, we created individualized dispatch plans for our drivers to give them more choice over the hours they work. For our front-line employees, we’ve accelerated investments to make their work environments better by improving lighting, adding fresh paint, renovating restrooms and breakrooms, and installing additional cooling stations. We have great jobs with industry-leading pay and benefits and great relationships with our employees. In fact, in 2022 we reached contract extension agreements with the Independent Pilots Association and our aircraft maintenance technicians. Soon we will begin contract negotiations with the Teamsters and we believe a win-win-win outcome is very achievable. And for our nearly 40,000 full-time management employees, we changed the composition of their pay by increasing the cash component, taking action to address their top area of concern. We measure our progress in People Led by how likely an employee is to recommend others to work at UPS. When I joined UPS, likelihood to recommend (LTR) was 51%, and in 2022 it reached 60%. Our goal is to reach an LTR of 80% or higher.
Lastly, Innovation Driven is about driving more productivity from the assets we own. Throughout the year, we leveraged the agility of our global integrated network to navigate the dynamic macro environment. Our engineers and operating teams used technology to guide their decisions to adjust the network in line with volume levels while providing outstanding service to our customers. Productivity initiatives like Total Service Plan, our smart package smart facility RFID technology and additional automation are unlocking greater efficiency and flexibility across our network. And we aim to make it even smarter, more automated and more efficient. On the environmental front, in 2022 we took delivery of over 2,300 alternative fuel and advanced technology vehicles, bringing our rolling laboratory to more than 15,600. Also in 2022, we created a growth platform we call logistics as a service, which adds new digital capabilities to our best-in-class integrated network. Under this platform, we launched our upstream delivery density solution where we continue to add customers and are seeing positive results. We measure Innovation Driven by delivering higher returns on invested capital, and in 2022, we delivered an adjusted return on invested capital of 31.3%, 50 basis points above 2021.
As an innovation-driven company guided by a strong purpose, our culture centers around the values established by our founder Jim Casey. He believed that we should give back to the communities we serve, and that we have a responsibility to all stakeholders for social and environmental stewardship. We approach sustainable development holistically to ensure our cross-functional sustainability initiatives align with our Customer First, People Led, Innovation Driven strategy. The execution of our strategy will help us reach our goals of carbon neutrality by 2050 and improving the well-being of one billion lives by 2040. We have an action plan to get us there and we are committed to pursuing planet-friendly solutions that enable us to continue to take care of our employees and serve our customers, stakeholders and communities without compromising the ability of future generations to meet their own needs.
BETTER AND BOLDER
Over the past two and a half years, we have fundamentally improved nearly every aspect of our business under our better not bigger framework, resulting in greater agility and stronger financial performance. Building on this foundation, we are transitioning to the next phase of our strategic framework… better and bolder. We will always get better and will continue to focus on growing value share, improving the customer experience and driving higher productivity from the assets we own. Bolder is about moving faster to grow in our targeted market segments and combining digital solutions with our global integrated network. It’s about growing our business around the edges to create powerful new offerings like logistics as a service. This suite of digital solutions further transforms the customer experience and creates new revenue streams for UPS.
Looking at the macro in 2023, the current environment is uncertain at best; however, we believe uncertainty creates opportunity. To that end, we are accelerating investments with a focus on three wildly important initiatives: improving the customer value proposition, increasing talent development and employee engagement, and leveraging our physical network with our digital platform to drive efficiency and logistics as a service. The agility of our integrated network, coupled with continued investment in our business, will enable us to quickly pivot as needed in an uncertain environment and enhance our ability to capture growth opportunities as we come out of this cycle.
To wrap up, I want to encourage all shareowners to vote your shares at our Annual Meeting in May. This is your opportunity to share your views with us. We listen and take your feedback into account as we seek to grow our business, further improve governance and create long-term shareowner value. As we approach the Annual Meeting, I encourage you to contact us with any questions or feedback at 404-828-6059.
UPS has a proud past and an even brighter future, and we believe our best days are ahead of us. We will get there by making bolder moves to digitally transform the customer experience to drive growth while continuing to drive efficiency in our integrated network. UPS is a remarkable company and it’s your company. We thank you for your support.
Carol B. Tomé
Chief Executive Officer
Read the original letter here.
