THE BATTLE FOR VALUE, 2004:
FEDEX CORP. VS. UNITED PARCEL SERVICE, INC.
As the U.S. package delivery business segment matured, International segment became the battle ground for the two package delivery giants – FedEx and UPS. FedEx is considered to be the innovative, entrepreneurial, inventor of customer logistical management, and an operational leader. UPS, on the other hand, is considered to be big, bureaucratic, and industry follower, although UPS is shedding this negative image with newer innovations.
FedEx Corp. started in 1971, by the end of 2003; it had nearly $15.4 billion in assets, net income of $830 million on revenues of about $22.5 billion and shipped more than 5.4 million packages daily.
UPS, Inc. founded in 1907, by the end of 2003; it had $28.9 billion in assets, net income of $2.9 billion on revenues of $33.4 billion, and with excellent (AAA) bond rating.
The struggle to deliver value and dominate the package delivery market between FedEx and UPS has reached titanic proportions and clearly evident from their respective expenditures. Between 1992 and 2003, capital expenditures for FedEx and UPS rose at an annualized rate of 34.64% and 36.78%, respectively. Currently both companies are matching each other’s investments in capital almost exactly.
Placing ourselves in the center of the battle of giants and using the data provided in the Exhibits 1 through 11, we try to answer the following questions in this case analysis.
1: Who is creating more value and how?
2: Who is destroying the value?
FedEx’s growth strategy is “Produce superior financial returns for shareholders by providing high value added supply chain, transportation, business and related information services through focused operating companies competing collectively, and managed collaboratively under FedEx brand”. UPS’s growth strategy is “Serve the evaluation distribution, logistics and commerce needs of customers with excellence and value in all services. With strong financials and broad employee ownership provide long-term competitive returns to the shareholders”.
FedEx’s financial ratios are improving while UPS has far better ratios in liquidity, leverage, and profitability. UPS has consistently paid and increased dividends while FedEx just started paying dividends in 2003. FedEx’s EPS comp. annual growth rate (CAGR) 1992 -2003 is 27.54% compared to UPS’s 13.89%. However, since going public 1999, UPS has better EPS Compounded Annual growth rate (CAGR) compared to FedEx– 34.30% vs. 6.98%. UPS has far better Cum. Total market returns than FedEx – 705.95% vs. 528.02%. UPS has far better EVA(2003) compared to FedEx - $1,195 million vs. $170 million. MVA(2003) for UPS also far better than FedEx - $11,816 million vs. $69,315 million.
By looking at the calculations above we can clearly say that both UPS and FedEx created value, but UPS has created more value for shareholders than FedEx.
Case Analysis Detail:
We start with analyzing both companies using the data provided in the book in the exhibits 1 through 11. We start the Economic profit analysis of both FedEx and UPS by review and analyzing the Return on Net Assets (RONA). A Return on Net Assets Ratio determines whether the institution is financially better off than in previous years by measuring total economic return. A decline in this ratio may be appropriate and even warranted if it reflects a strategy to better fulfill the institution's mission. An improving trend in this ratio indicates that the institution is increasing its net assets and is likely to be able to set aside financial resources [pic] to strengthen its future financial flexibility. Looking at the graph generated from data presented in Exhibits 9 & 10, shows from 1992 to 1994 the ratio for FedEx is improving while it is decreasing for UPS, although it is still well below UPS figures. A quick look at Exhibit 4, we did not find any competitive...
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