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UPS Boss Preaches the Power of No

02/26/2021 | 05:44am EDT

By Paul Ziobro

Carol Tomé took over United Parcel Service Inc. in the middle of a pandemic that has sent demand for its services soaring. She's teaching the delivery giant how to say no.

The longtime finance chief of Home Depot Inc. and first outsider to lead UPS is remaking the company in her number-crunching image, in part by adopting the philosophy that delivering less can be more. And she is using the urgency created by the crisis to revamp its business model in months, not years.

Since she became chief executive in June, UPS has become more selective about which packages it ships. The company is tearing up shipping contracts midterm. Sales leaders evaluate customers less by volume than by what they deliver to the bottom line. Executives are scrutinizing divisions for possible divestitures. Prices are going up.

The push to transform UPS into what Ms. Tomé calls a "better, not bigger" company has created friction. Big retailers accustomed to UPS's accommodating stance found themselves facing tighter shipping limits, especially during the crucial holiday season. Others were hit by price increases. Meanwhile, analysts have questioned whether UPS has become overly reliant on one customer, Amazon.com Inc., especially since the e-commerce company is building its own delivery network.

"There comes a point where you've got to optimize and sweat the assets you have and really think about the economic model differently," Ms. Tomé said in an interview earlier this month. "We're 114 years old this year. It's time for us to pivot."

The plan paid off during the first peak season under Ms. Tomé's watch. While some customers faced delays on pickups, UPS pointed to third-party data showing the company outperformed rivals in on-time deliveries in the lead-up to the holidays. According to ShipMatrix Inc., a software provider that crunches shipping data, UPS delivered 96.7% of packages on time in the five weeks before Christmas, compared with 95.1% for FedEx Corp. and 93.2% for the U.S. Postal Service. And it came as UPS marshaled resources to start distributing vaccines around the globe to curb the pandemic.

With the world mired in the second year of a pandemic, the pivot arrives at a tricky time. Entire sectors, from restaurants to travel, have crumpled under lockdowns and social-distancing measures. Every business has had to change the way things are done.

As the economy seized up, UPS and rival FedEx initially worried their more profitable business of shipping parts to factories and inventory to stores would crater amid widespread closures. Job losses would crimp spending and economic activity. Teamsters union leaders braced for job cuts.

Instead, business boomed on the back of an e-commerce surge. While lockdowns hurt business-to-business shipments, store closures shifted purchases of myriad items online -- paper towels to clean, puzzles to entertain, desks to work at. They all needed a way to get to homes. FedEx, UPS and the Postal Service stepped up.

"None of us expected the acceleration of e-commerce like we've seen this year," Ms. Tomé said. U.S. online retail spending jumped 32% to $792 billion in 2020, according to the Commerce Department.

Ms. Tomé, 64 years old, was a departure for a company historically run by men, some of whom started out sorting packages and worked their way up the ranks. Born in Wyoming, Ms. Tomé was the oldest of four children and learned to hunt, fish, cook and sew when she was young, according to a video memoir. She earned a communications degree from the University of Wyoming, where she skied often and met her husband at a toga party, before studying finance and holding jobs in commercial lending and corporate finance that would lead to her joining Home Depot.

In her 18-year run as CFO at the retailer, she built a record of bucking convention. After years of building stores to chase growth, Home Depot curbed new openings and focused on operating its existing ones more efficiently as e-commerce reshaped shopping. It sold divisions, closed stores and shed jobs. During the 2008 recession, the company halted pay raises for executives but kept them for store employees and continued to pay out bonuses to them. Profits rose.

She was one of three candidates for CEO in 2014 and stayed on despite being passed over for the top job.

It is unclear how easily tactics that were successful for Ms. Tomé at Home Depot can translate to a non-retailer. Some investors from her Home Depot days have faith that she can replicate her success, said Allison Landry, transportation analyst at Credit Suisse. For others, Ms. Tomé still needs to prove it.

"They think she is great but are a bit concerned that just because she did it at Home Depot, does that mean she can do it at UPS?" Ms. Landry said.

The chairman of UPS's board, William Johnson, said Ms. Tomé's leadership qualities and "extensive knowledge of UPS's business and people" set her apart from a group of internal and external candidates, and that her performance so far has validated the choice. "Carol was absolutely the right person for this time at UPS," Mr. Johnson said.

Her introduction to UPS's roughly 500,000 workers came as the U.S. started shutting down. On March 12, the day after the National Basketball Association suspended play and actor Tom Hanks revealed that he and his wife had Covid-19, UPS announced a first for the company: Its next CEO would be someone who had never worked there.

Appearing in the corporate cafeteria at the company's Atlanta headquarters and streamed to employees elsewhere, then-CEO David Abney said in a speech that he would step down in June, then handed the floor to Ms. Tomé.

Employees say the differences were stark. The towering Mr. Abney speaks in a deep, droning voice. Ms. Tomé, they said, was a more natural communicator. She was animated. She moved her hands when she spoke. She swore.

"Right off the bat, you got the sense that this was going to be a different leadership style," one employee said. The first woman to lead UPS, Ms. Tomé is currently just one of 30 female CEOs at companies in the S&P 500, according to Equilar Inc. (A 31st, Jane Fraser, is to take the top job at Citigroup Inc. on Monday.)

Five days later, UPS told corporate employees to start working from home.

Ms. Tomé knew UPS, having sat on the company's board since 2003. Some senior managers got their first exposure to her at an annual management meeting in 2013, one former executive recalled, when she shared her management philosophy, called servant leadership. She viewed her job at Home Depot -- and now at UPS -- as doing all she could to serve customers and allow employees to do their jobs.

She went out of her way in her first months at UPS to talk with workers across all its businesses, asking them what worked and what didn't. In those conversations she discovered that the company's strict dress code, which banned beards or traditionally Black hairstyles like Afros or braids, was making it hard to retain workers.

So she relaxed the rules. UPS told workers it was part of an effort to "celebrate diversity rather than corporate restrictions," according to documents reviewed by The Wall Street Journal.

It was a break from the top-down management philosophy of UPS's founder and longtime leader, Jim Casey, who instituted a culture of hard work and his own rulebook. Among Mr. Casey's tenets: Seniority is king. Avoid left turns. No sneakers.

As Ms. Tomé assumed her role, UPS was hiring thousands of workers to help with the surge in business -- and competing with its biggest customer, Amazon, which was on its own hiring spree. Packages shipped to consumers, which pre-pandemic represented more than half the company's business, were rising 65%, while those to businesses dropped by nearly 22%. That meant more stops, more miles driven, more costs.

And the holidays were approaching.

Ms. Tomé said the circumstances "allowed us to stop and think about how we are going to lean into this unique market."

One area of focus was prices. Costs to operate in the pandemic were rising, as drivers logged overtime, new hires came on board and new protocols and equipment were needed to keep operations safe. Prices would have to go up, UPS told customers.

UPS started with surcharges on customers -- primarily big retailers -- whose shipping volumes spiked significantly during the pandemic. Later, realizing the pricing dynamics had moved in its favor, UPS began canceling some contracts that were no longer as profitable, using perfunctory exit clauses that shippers and consultants say had been rarely, if ever, exercised before.

The higher prices carried over into the holidays, with peak-season surcharges up to $3 a package for ground shipment and up to $4 a package for some packages shipped by air. It also was a period when UPS customers came up against the delivery company's new mentality.

UPS had already been running near maximum capacity for months, so the peak season, which hits a crescendo between Thanksgiving and Christmas, posed an additional challenge. With more packages entering a strained network, where would they go?

UPS's answer was to take the packages -- but only as many as the two sides planned on together, effectively capping some customers' use. It held customers to stricter shipping limits than ever before, said numerous industry consultants, to avoid overwhelming the network. That resulted in large retailers like Gap Inc. and Nike Inc. facing temporary pauses on pickups in early December.

Gap and other retailers said pausing order pickups from stores was part of plans they had developed with carriers to manage capacity constraints during the holiday shopping season and worked as expected.

(MORE TO FOLLOW) Dow Jones Newswires

02-26-21 0544ET

Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -0.16% 33745.4 Delayed Quote.10.44%
NASDAQ 100 -0.19% 13819.350599 Delayed Quote.7.42%
NASDAQ COMP. -0.36% 13849.999041 Delayed Quote.7.85%
S&P 500 -0.02% 4127.99 Delayed Quote.9.92%
THE HOME DEPOT, INC. 0.49% 320.79 Delayed Quote.20.77%
UNITED PARCEL SERVICE, INC. 1.50% 178.58 Delayed Quote.6.05%
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Financials (USD)
Sales 2022 136 B - -
Net income 2022 13 522 M - -
Net Debt 2022 32 400 M - -
P/E ratio 2022 25,1x
Yield 2022 2,07%
Capitalization 343 B 343 B -
EV / Sales 2022 2,77x
EV / Sales 2023 2,68x
Nbr of Employees 504 800
Free-Float 60,0%
Duration : Period :
The Home Depot, Inc. Technical Analysis Chart | MarketScreener
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Technical analysis trends THE HOME DEPOT, INC.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 35
Average target price 305,50 $
Last Close Price 320,79 $
Spread / Highest target 12,2%
Spread / Average Target -4,77%
Spread / Lowest Target -32,7%
EPS Revisions
Managers and Directors
Craig A. Menear Chairman & Chief Executive Officer
Edward P. Decker President & Chief Operating Officer
Richard V. McPhail Chief Financial Officer & Executive Vice President
Matthew A. Carey Chief Information Officer & Executive VP
Paul Antony Senior Vice President-Technology
Sector and Competitors
1st jan.Capitalization (M$)
THE HOME DEPOT, INC.20.77%343 244
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