United Parcel Service Inc. (NYSE:UPS)

The income tax expense composition exhibits notable fluctuations over the five-year period. Current tax expense initially increased from 2021 to 2022, then decreased consistently through 2025. Deferred tax expense demonstrates a more volatile pattern, shifting from a substantial expense to a benefit in later years.

Current Tax Expense

Current tax expense rose from US$2,060 million in 2021 to US$2,746 million in 2022, representing a significant increase. Subsequently, a consistent decline is observed, falling to US$1,666 million in 2023, US$1,675 million in 2024, and further to US$1,600 million in 2025. This suggests a decreasing tax liability related to current taxable income.

Deferred Tax Expense

Deferred tax expense decreased substantially from US$1,645 million in 2021 to US$531 million in 2022. This trend continued with a further reduction to US$199 million in 2023. In 2024, deferred taxes shifted to a benefit of US$15 million, and this benefit expanded to US$8 million in 2025. This indicates a reversal of previously recorded deferred tax liabilities, potentially due to changes in temporary differences or tax rate expectations.

Total Income Tax Expense

Total income tax expense followed the trend of current tax expense, decreasing from US$3,705 million in 2021 to US$3,277 million in 2022. The decline continued through 2025, reaching US$1,592 million. The impact of the deferred tax benefit becomes increasingly apparent in the later years, moderating the overall decrease in income tax expense.

The combined effect of these trends suggests a potential shift in the company’s taxable income composition, with a decreasing proportion subject to current taxation and an increasing utilization of deferred tax assets or reversals of deferred tax liabilities. Further investigation into the underlying causes of these changes, such as changes in income mix, tax planning strategies, or tax law modifications, would be beneficial.

The effective income tax rate exhibited relative stability over the five-year period, fluctuating within a narrow range around the U.S. federal statutory tax rate. While variations exist, no significant or sustained upward or downward trend is apparent.

Effective Income Tax Rate Trend

The effective income tax rate began at 22.30% in 2021, decreased slightly to 22.10% in 2022, and then experienced a further decrease to 21.80% in 2023. A modest increase to 22.30% was observed in 2024, followed by a slight decline to 22.20% in 2025. These fluctuations suggest the presence of factors influencing the rate beyond the standard statutory level.

The effective income tax rate consistently remained above the U.S. federal statutory tax rate of 21.00% throughout the observed period. This indicates the presence of permanent differences or non-deductible expenses impacting the company’s tax obligations. The magnitude of the difference between the effective and statutory rates remained relatively consistent, suggesting these underlying factors are stable.

Relationship to Statutory Rate

The consistent difference between the effective and statutory rates warrants further investigation into the specific items causing this divergence. Potential causes include tax credits, non-taxable income, or limitations on deductible expenses. The relatively small fluctuations in this difference suggest these factors are not subject to significant year-over-year change.

Overall, the effective income tax rate demonstrates a pattern of modest variability around a consistent level, indicating a stable tax profile despite operating above the statutory rate.

The composition of deferred tax assets and liabilities exhibits notable shifts over the five-year period. Overall, a net deferred tax liability is consistently reported, though the magnitude of the liability fluctuates annually. A detailed examination of the underlying components reveals specific trends impacting these balances.

Deferred Tax Assets - Composition

The largest component of deferred tax assets consistently stems from pension and postretirement benefits, although this amount decreased significantly from $1,620 million in 2021 to $637 million in 2022 before increasing again to $1,433 million in 2025. Insurance reserves represent the second largest component, demonstrating a steady increase from $587 million in 2021 to $683 million in 2025. Loss and credit carryforwards experienced a decline from $342 million to $232 million between 2021 and 2023, with a slight recovery to $241 million in 2025. Accrued employee compensation remains relatively stable, fluctuating between $304 million and $453 million. Operating lease liabilities contribute a substantial portion, increasing from $874 million in 2021 to $1,073 million in 2023 before decreasing slightly to $1,018 million in 2025. The ‘Other’ category shows volatility, peaking at $646 million in 2022 and settling at $455 million in 2025.

The valuation allowance against deferred tax assets is present throughout the period. It remained relatively consistent between 2021 and 2023, around -$120 million, before increasing to -$182 million in 2024 and decreasing significantly to -$84 million in 2025. This suggests a changing assessment of the likelihood of realizing the associated deferred tax assets.

Deferred Tax Liabilities - Composition

Fixed assets and capitalized software consistently represent the largest component of deferred tax liabilities, with a gradual increase in magnitude from -$5,808 million in 2021 to -$5,974 million in 2023, followed by a slight decrease to -$5,938 million in 2025. Operating lease right-of-use assets contribute significantly, increasing from -$839 million in 2021 to -$1,017 million in 2023, and then decreasing to -$950 million in 2025. The ‘Other’ category shows a consistent increase, rising from -$593 million in 2021 to -$764 million in 2025.

The net deferred tax position, calculated as the difference between total deferred tax assets (net of valuation allowance) and total deferred tax liabilities, is consistently negative, indicating a net deferred tax liability. The net liability increased from -$2,949 million in 2021 to -$4,163 million in 2022, then decreased to -$3,550 million in 2025. The decrease in the net liability from 2022 to 2025 is attributable to a slower growth rate in deferred tax liabilities compared to the growth in net deferred tax assets.

The deferred tax asset balance decreased from 2021 to 2023, then exhibited an increase in subsequent years. Conversely, deferred tax liabilities demonstrated an initial increase followed by a decline and stabilization. These movements suggest shifts in the recognition of future tax benefits and obligations.

Deferred Tax Assets

The deferred tax asset balance began at US$176 million in 2021. A consistent decline was observed through 2023, reaching US$126 million. Subsequently, the balance increased to US$112 million in 2024 and further to US$140 million in 2025. This pattern could indicate changes in the realizability of existing deferred tax assets, or the creation of new ones, potentially linked to changes in loss carryforwards or temporary differences.

Deferred Tax Liabilities

Deferred tax liabilities increased significantly from US$3,125 million in 2021 to US$4,302 million in 2022. A decrease followed, with the balance declining to US$3,772 million in 2023 and US$3,595 million in 2024. The balance then stabilized, reaching US$3,690 million in 2025. This suggests a reduction in future taxable amounts, potentially due to changes in temporary differences or accounting methods. The stabilization in the later period indicates a relative equilibrium in the sources of these liabilities.

The substantial difference in magnitude between deferred tax assets and deferred tax liabilities is maintained throughout the period. The net deferred tax liability position remains significant, indicating a future tax obligation is anticipated. The trends observed warrant further investigation into the underlying temporary differences and their potential impact on future tax payments.

The financial information reveals adjustments made to reported figures, primarily relating to the removal of deferred tax assets and liabilities. These adjustments impact the reported values for total assets, total liabilities, equity, and net income over the five-year period from 2021 to 2025. A consistent pattern emerges where adjusted figures are generally higher than reported figures for equity and net income, while adjusted assets and liabilities are typically lower than their reported counterparts.

Total Assets

Reported total assets experienced a slight increase from 2021 to 2022, followed by a decrease in 2023 and 2024, before increasing again in 2025. The adjusted total assets mirror this trend, exhibiting similar fluctuations. The difference between reported and adjusted assets remains relatively stable, averaging approximately $130 million annually, suggesting a consistent impact from the deferred tax adjustments.

Total Liabilities

Reported total liabilities decreased significantly from 2021 to 2022, then increased in 2023 and remained relatively flat through 2025. Adjusted total liabilities demonstrate a similar pattern, but with larger absolute differences compared to the reported values. The adjustments consistently reduce the reported liabilities, with the largest reduction occurring in 2022, amounting to approximately $4,302 million.

Equity for Controlling Interests

Reported equity fluctuated considerably over the period, peaking in 2022 and declining in subsequent years. The adjusted equity figures are consistently higher than the reported equity, and also exhibit a similar trend of peaking in 2022 and then declining. The adjustments add approximately $2,950 million to equity in 2022, indicating a substantial impact from the deferred tax adjustments in that year.

Net Income

Reported net income declined steadily from 2021 to 2025. The adjusted net income follows the same downward trend, but is consistently higher than the reported net income. The adjustments increase net income by approximately $525 million in 2021, and by smaller amounts in subsequent years. This suggests that the removal of deferred tax effects positively impacts reported profitability.

The consistent nature of these adjustments suggests a systematic removal of deferred tax items. The impact is most pronounced on equity and liabilities, with smaller but consistent effects on assets and net income. The adjustments appear to present a more favorable financial picture, particularly in terms of equity and profitability, compared to the initially reported figures.

The financial performance metrics demonstrate a consistent pattern when adjusted for the removal of deferred tax impacts. Generally, the adjusted ratios are marginally higher than their reported counterparts, suggesting that deferred taxes are currently exerting a downward pressure on reported profitability and returns. A general trend of declining profitability and returns is observed across the period from 2021 to 2025, even after adjustment.

Profitability

Reported net profit margin decreased substantially from 13.25% in 2021 to 6.28% in 2025. The adjusted net profit margin mirrors this decline, moving from 14.94% to 6.28% over the same period. While the adjusted margin is consistently higher, the magnitude of the decrease is similar, indicating deferred taxes are not the primary driver of the overall profitability reduction. The difference between reported and adjusted margins remains relatively stable, fluctuating between approximately 1.5% and 2.0%.

Asset Efficiency

Total asset turnover, both reported and adjusted, exhibits relative stability between 2021 and 2023, with a slight decrease observed in 2024 and 2025. The adjusted ratio consistently shows a marginally higher value than the reported ratio, but the difference is minimal, suggesting that deferred taxes have a limited impact on how efficiently assets are utilized to generate revenue. The decline from 1.40/1.41 in 2021/2022 to 1.21/1.22 in 2025 indicates a decreasing ability to generate sales from each dollar of assets.

Financial Leverage

Reported financial leverage decreased from 4.87 in 2021 to 3.59 in 2022, then increased to 4.50 in 2025. The adjusted financial leverage follows a similar pattern, but at lower levels (4.02, 2.96, and 3.69 respectively). The removal of deferred taxes results in a lower leverage ratio, indicating a reduced reliance on debt financing when these items are excluded. The increasing trend in both reported and adjusted leverage from 2022 to 2025 suggests a growing reliance on debt.

Return on Equity (ROE)

Reported ROE experienced a significant decline from 90.44% in 2021 to 34.34% in 2025. The adjusted ROE also decreased substantially, from 84.50% to 28.13% over the same period. The difference between reported and adjusted ROE remains relatively consistent, around 6-8%, indicating that deferred taxes contribute to the overall decline in shareholder returns, but are not the sole cause.

Return on Assets (ROA)

Reported ROA decreased from 18.57% in 2021 to 7.62% in 2025. The adjusted ROA shows a similar downward trend, moving from 21.00% to 7.63% during the same timeframe. The adjusted ROA is consistently higher than the reported ROA, but the difference is relatively small, suggesting a modest impact from deferred taxes on the efficiency of asset utilization in generating profits. The decline in both reported and adjusted ROA indicates a decreasing ability to generate profit from each dollar of assets.

In summary, the adjustments for deferred taxes provide a slightly more favorable picture of financial performance, but do not alter the overarching trend of declining profitability and returns. The primary drivers of these declines appear to be factors other than deferred tax impacts.

The period under review demonstrates fluctuations in both reported and adjusted net income, consequently impacting net profit margins. While both metrics generally trend downward, the adjusted figures consistently present a more favorable picture of profitability. A notable divergence between reported and adjusted net income is observed across all years, suggesting the presence of significant items impacting reported results.

Reported Net Income & Margin

Reported net income decreased from US$12,890 million in 2021 to US$5,782 million in 2024, before stabilizing slightly at US$5,572 million in 2025. This decline is mirrored in the reported net profit margin, which fell from 13.25% in 2021 to 6.35% in 2024, and remained at 6.28% in 2025. The consistent decline indicates increasing pressure on profitability as measured by reported figures.

Adjusted Net Income & Margin

Adjusted net income followed a similar pattern, decreasing from US$14,535 million in 2021 to US$5,767 million in 2024, with a slight increase to US$5,564 million in 2025. The adjusted net profit margin decreased from 14.94% in 2021 to 6.33% in 2024, and remained at 6.28% in 2025. Although declining, the adjusted net profit margin consistently exceeds the reported margin throughout the period.

Margin Differential

The difference between the adjusted and reported net profit margins remained relatively stable, averaging approximately 2.8-2.9 percentage points across the years. This consistent difference suggests that the adjustments made to net income represent a recurring and material impact on the overall profitability assessment. The nature of these adjustments would warrant further investigation to understand their underlying causes and sustainability.

Recent Stabilization

Both reported and adjusted net profit margins appear to stabilize in 2024 and 2025, holding steady at 6.35%/6.28% and 6.33%/6.28% respectively. This suggests a potential leveling off of the downward trend, although further monitoring is necessary to confirm a sustained stabilization.

In summary, the financial performance, as indicated by net profit margins, experienced a general decline over the analyzed period. The consistent difference between reported and adjusted figures highlights the importance of considering adjustments when evaluating the company’s underlying profitability. The recent stabilization in margins warrants continued observation to determine if it represents a turning point in the trend.

The reported and adjusted total asset turnover ratios exhibit similar trends over the five-year period. Both ratios initially demonstrate a slight increase from 2021 to 2022, followed by a decline through 2025. The adjusted total asset turnover ratio consistently remains marginally higher than the reported total asset turnover ratio each year.

Reported Total Asset Turnover

The reported total asset turnover ratio increased from 1.40 in 2021 to 1.41 in 2022. A subsequent decrease is observed, falling to 1.28 in 2023, then slightly recovering to 1.30 in 2024, before concluding at 1.21 in 2025. This indicates a diminishing efficiency in generating sales from assets over the period.

Adjusted Total Asset Turnover

The adjusted total asset turnover ratio mirrors the trend of the reported ratio, beginning at 1.41 in 2021 and 2022. It then decreased to 1.29 in 2023, increased to 1.30 in 2024, and finished at 1.22 in 2025. The consistent difference between the reported and adjusted ratios suggests that the adjustments made to total assets, while not substantial, contribute to a slightly more favorable turnover calculation.

Asset Base

Reported total assets experienced an initial increase from US$69,405 million in 2021 to US$71,124 million in 2022. Subsequently, a slight decrease occurred in 2023 (US$70,857 million) and 2024 (US$70,070 million), followed by an increase to US$73,090 million in 2025. Adjusted total assets follow a similar pattern, remaining close to the reported figures throughout the period.

The combined trends suggest that while the asset base fluctuated, the ability to generate sales relative to those assets generally declined between 2022 and 2025. The minor differences between reported and adjusted asset turnover suggest the asset adjustments are not materially impacting the overall trend.

An examination of the financial information reveals trends in both reported and adjusted financial leverage over a five-year period. Both measures demonstrate a decrease in leverage from 2021 to 2022, followed by fluctuations through 2025. The adjusted figures consistently present a lower leverage ratio than the reported figures, suggesting the impact of adjustments to asset and equity valuations.

Reported Financial Leverage

Reported financial leverage decreased from 4.87 in 2021 to 3.59 in 2022, representing a substantial reduction. It then increased to 4.09 in 2023 and 4.19 in 2024, before rising again to 4.50 in 2025. This indicates a period of deleveraging followed by a re-increase in leverage, potentially due to asset growth or changes in equity.

Adjusted Financial Leverage

Adjusted financial leverage followed a similar pattern, declining from 4.02 in 2021 to 2.96 in 2022. It subsequently rose to 3.38 in 2023 and 3.46 in 2024, concluding at 3.69 in 2025. The magnitude of the changes in the adjusted leverage is less pronounced than those observed in the reported leverage, but the overall trend remains consistent.

Asset and Equity Adjustments

The difference between reported and adjusted total assets is relatively small across all years, ranging from approximately $176 million to $140 million. However, the adjustments to equity are more significant, with adjusted equity consistently exceeding reported equity. This suggests that the adjustments primarily relate to the valuation of equity items. The adjustments to equity decreased from $2,949 million in 2022 to $550 million in 2025.

The consistent difference between reported and adjusted leverage highlights the importance of understanding the nature of these adjustments. The trend of increasing leverage in the later years of the period, as measured by both reported and adjusted figures, warrants further investigation to determine the underlying drivers and potential implications for financial risk.

The period under review demonstrates fluctuating financial performance as reflected in both reported and adjusted return on equity (ROE) metrics. Reported net income decreased significantly from 2021 to 2023, stabilized in 2024, and experienced a slight decline in 2025. Adjusted net income followed a similar pattern, though the magnitude of the decrease from 2021 to 2023 was less pronounced. Equity for controlling interests, both reported and adjusted, increased from 2021 to 2022 before declining through 2025.

Reported Return on Equity (ROE)

Reported ROE experienced a substantial decline over the five-year period. Starting at 90.44% in 2021, it decreased to 58.36% in 2022, and continued to fall to 38.76% in 2023. The rate of decline slowed in 2024 and 2025, with ROE holding relatively steady at 34.59% and 34.34% respectively. This suggests a diminishing, but persistent, erosion of profitability relative to shareholder equity as measured by reported figures.

Adjusted Return on Equity (ROE)

Adjusted ROE mirrored the trend observed in reported ROE, though at lower percentages. It began at 84.50% in 2021, decreased to 50.44% in 2022, and then to 32.97% in 2023. Similar to the reported ROE, the decline moderated in 2024 (28.55%) and 2025 (28.13%). The consistency between the reported and adjusted ROE trends indicates that the adjustments made to net income and equity do not fundamentally alter the overall profitability picture.

Relationship between Net Income and Equity

The decrease in both reported and adjusted ROE is attributable to a combination of declining net income and fluctuating equity levels. While equity increased in 2022, the subsequent declines in net income from 2021 to 2023 exerted significant downward pressure on ROE. The stabilization of net income in 2024 and 2025, coupled with a slower rate of equity decline, resulted in a leveling off of ROE during those years.

In summary, the period was characterized by a consistent decrease in profitability relative to equity, as evidenced by the declining ROE metrics. The trends suggest that while the rate of decline has slowed, sustained improvement in net income would be necessary to reverse the overall downward trajectory.

The period under review demonstrates fluctuating performance in reported and adjusted net income, alongside relatively stable total asset figures. This impacts both reported and adjusted return on assets (ROA), exhibiting a clear downward trend over the five-year period. The analysis below details these observations.

Net Income and ROA Trends

Reported net income decreased significantly from US$12,890 million in 2021 to US$5,782 million in 2024, with a slight increase to US$5,572 million in 2025. Adjusted net income follows a similar pattern, declining from US$14,535 million in 2021 to US$5,564 million in 2025. Consequently, reported ROA decreased from 18.57% in 2021 to 7.62% in 2025. Adjusted ROA mirrors this decline, moving from 21.00% in 2021 to 7.63% in 2025.

Asset Base Stability

Reported total assets remained relatively consistent between 2021 and 2024, fluctuating between US$69,405 million and US$71,124 million. A moderate increase is observed in 2025, reaching US$73,090 million. Adjusted total assets show a similar trend, remaining stable between US$69,229 million and US$70,985 million from 2021 to 2024, before increasing to US$72,950 million in 2025. The stability in the asset base suggests that changes in ROA are primarily driven by fluctuations in net income rather than significant shifts in asset levels.

Adjusted vs. Reported ROA

Adjusted ROA consistently exceeds reported ROA across all years examined. The difference between the two metrics varies slightly year-to-year, but generally remains within a range of approximately 1.0 to 3.5 percentage points. This indicates that adjustments made to net income and total assets have a positive impact on the calculated ROA. The consistent difference suggests a systematic impact from these adjustments.

Recent Performance

The rate of decline in both reported and adjusted ROA appears to moderate between 2024 and 2025. While both metrics still decreased, the magnitude of the decrease is smaller compared to previous years. This suggests a potential stabilization of profitability, although further monitoring is required to confirm this trend.

In summary, the period is characterized by declining profitability, as reflected in both reported and adjusted net income, leading to a consistent decrease in ROA. The asset base remained relatively stable, indicating that the primary driver of the ROA decline is the reduction in net income. Adjustments to net income and total assets consistently improve the ROA calculation, and a potential moderation in the rate of decline is observed in the most recent year.