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. 
• Upcoming negotiations with the drivers' union could disrupt the CEO's success.

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 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. 

'Better, not bigger' pleases the street

Carol Tomé was hired to whip UPS into shape, but some insiders worry she's killing what made the company great in the first place

UPS is hiking some rural delivery surcharges by as much 200% — leaving the countryside ripe for an Amazon takeover

UPS says it's processing a record number of returns as 1 in 4 Americans plan to ship stuff back to sellers after the holidays

Union negotiations loom 

UPS is facing down a fight with its drivers' union over the weekend delivery it needs to compete with Amazon and FedEx

Tensions at UPS are brewing between leadership and unionized drivers as the new CEO doubles down on drivers who make deliveries in their own cars

UPS dives into same-day delivery by buying crowdsourced delivery company Roadie

UPS faces new rivals 

Amazon will soon be the biggest US package carrier. Here's what that means for UPS and FedEx, according to Morgan Stanley.

DoorDash's latest push for delivery dominance pits it against UPS and FedEx

The biggest threat to UPS and FedEx isn't Amazon. It's the gig economy.