UPS CEO Carol Tomé aced the crucial holiday delivery test but an even bigger challenge is coming her way

• UPS reported record profitability in the fourth quarter of 2021 on Tuesday.
• The results validate CEO Carol Tomé's "better, not bigger" strategy.

UPS stock jumped 15% by noon Tuesday after CEO Carol Tomé reported another quarter of results that investors saw as a validation of her "better, not bigger" strategy.

Tomé's January call is arguably the most important of the year, as it includes performance during the holiday shipping season. The CEO's first peak season in 2020 was an anomaly for pandemic-related reasons. So 2021 was her chance to prove the impact of her strategy, including only taking packages with sufficient profit margins and focusing the company's many technology projects.

This peak season presented different challenges than Tomé's first. Holiday package volume came and tapered off early, meaning the company had to quickly reduce capacity and cut cost when the volume no longer matched. The company reduced seasonal staff early and returned rental vehicles, CFO Brian Newman said.

UPS consolidated revenue for the fourth quarter was up 11.5% year over year and moved up it's long-term revenue targets by a full year. Revenue per package was up 10.5% in the US. Tomé said the company reported the highest operating profit in its history — up 37.7% since 2020.

"Inside our better, not bigger framework, we are maniacal about controlling what we can control," Tomé said.

But a clock is ticking away in the background. The company's contract with the International Brotherhood of Teamsters is up in 2023, and negotiations will begin this year to draft a new agreement for the company's 260,000 drivers.

Tomé's strategy has included leaning into some of the more controversial elements of the last union contract, negotiated by her predecessor. Drivers and union leaders have expressed dissatisfaction with how UPS staffs its relatively new Saturday service and controversial seasonal hires, including workers who deliver packages in their own cars.

In October, Tomé told analysts she wants to conduct negotiations "different than we've done in the past," according to a transcript from Sentieo. "We want a win-win-win at the end of the day, and we're looking at this through the lens of a strategy rather than just a negotiation," she said.

At the same time, new Teamsters President-elect Sean O'Brien takes office in March. He told Bloomberg his plan to unionize Amazon workers involves making an example out of UPS by landing its workers a better contract.

Go deep on the issues at the heart of the negotiations, and the fast-growing new slate of competitors for the delivery giant, with these stories.

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