Now is the time to ‘really rethink our business model’

UPS CEO Carol Tomé is wasting no time putting her 25 years of experience at Home Depot to work at reshaping the 114-year old logistics leader. That time at Home Depot (HD) includes 18 years serving as its CFO, shepherding the home improvement giant through the Great Recession.

Since taking over as CEO of UPS (UPS) in June, Tomé (who had been on the UPS board since 2003) has launched a review of the entire UPS business. That has included assessing the UPS culture, its internal operating processes, and the very business model of the company. Tomé told Yahoo Finance Live the review had to happen so UPS could bring down its debt and costs, support higher dividend payouts, and position the business correctly for the future.

Having followed Tomé’s career for some time, this writer will note the obsessive focus on improving UPS’ returns is no surprise — it’s her modus operandi.

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UPS CEO Carol Tomé introduces U.S. President Donald Trump for an event at a UPS facility at Hartsfield-Jackson Atlanta International Airport in Atlanta, Georgia, U.S., July 15, 2020. REUTERS/Jonathan Ernst

“This is really a pivotal time for our company, and it’s an exciting time to be part of UPS,” Tomé says. “It’s an opportunity for us to really rethink our business model. This year is our 114th year as a company. What got us here isn’t going to get us to where we need to be. Our competitors are changing. Our customers are changing. And the rate of change is accelerating. So we are leaning into that change.”

Shares rose after earnings beat expectations

Tomé is coming off her first big move stemming from this business model rethink. The company disclosed on Jan. 25 it would sell the low margin, capital intensive UPS Freight business to TFI International for $800 million. Proceeds from the sale are expected to be used to reduce UPS’ debt.

Meanwhile, the UPS machine continued to roll right along in the fourth quarter despite the CEO’s review.

Shares of UPS rose about 4% in Tuesday’s session after the company reported earnings as the e-commerce boom during the pandemic boosted the company’s fourth quarter sales and profits.

Here is how UPS performed compared to Wall Street estimates.

• Net Sales: $24.90 billion versus $22.89 billion

• Adjusted EPS: $2.66 versus $2.14

• U.S. Package Revenue: $15.74 billion versus $14.82 billion

• International Package Revenue: $4.77 billion versus $4.16 billion

• Supply Chain & Freight Revenue: $4.38 billion versus $3.34 billion

Wall Street has been bullish on what Tomé could do for UPS’ profits. Shares of UPS have surged 59% since she took over in June.

Tomé hinted she isn’t yet done with her review.

“When I came on board in June, I sat down with the leadership team and we agreed on the things that would not change. And we landed on five key principles: our values, our commitment to our investment grade credit rating, our brand relevance, our dividend and the importance of our dual class employee-owned shareholder base. Those things won’t change. Everything else is under review. We will have an investor conference on June 9. It’s our intent to lay out our longer-term financial objectives and the actions that we will take to delivery those objectives,” Tomé told Yahoo Finance Live.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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