THE BATTLE FOR VALUE, 2004: FEDEX CORP. VS. UNITED PARCEL SERVICE, INC.
Synopsis and Objectives
• Set in June 2004
• To assess the financial performance of FedEx Corp. and United Parcel Service, Inc (UPS). The two firms have competed intensely for dominance of the overnight express package industry.
• This case is intended for use in an introductory discussion of corporate value creation and its sources. It requires no numerical computations; rather, the tasks are to interpret the results and to reflect upon their implications. The contrasting record of the two firms affords a platform to:
• Assess economic profit analysis (also known as Economic Value Added) and, more generally, the measurement of financial performance and health. The case provides a complete historical economic profit analysis for both firms, and permits comparison with other classic approaches to historical performance analysis. This comparison affords the opportunity to discuss the attributes of healthy and successful companies, and to explore the strengths and weaknesses of economic profit. Key learning points about economic profit include its dependence on the conventions of generally accepted accounting principles (GAAP) and its ignorance of strategic option value.
• Evaluate the financial implications of rigorous competition and corporate transformation.
1. What are the enabling and inhibiting factors facing the two firms as they pursue their goals? Do you think that either firm can attain a sustainable competitive advantage in this business?
2. Why did FedEx’s stock price outstrip UPS’s during the initiation of talks over liberalized air cargo routes between the U.S. and China? Assuming a perfectly efficient stock market, how might one interpret a 14% increase in FedEx’s market value of equity?
3. How have FedEx and UPS performed since the early 1990s? Which firm is doing better?
4. If you had to identify one of those companies as excellent, which company would you choose? On what basis did you make your decision? More generally, what is excellence in business?
The strengths and weaknesses of various financial measures
| | | | | |Strengths |Weaknesses | | | | | |1. Direct inspection of the financial |Reveals trends |Does not permit a ready assessment of | |statements |Comparison of absolute sizes |efficiency | | | |Biased by size differences | | | |Book, not market, values | | | |Influenced by GAAP choices | | | |Backward, not forward, looking | | | | | |2. Financial ratios |Adjusts for size differ-ences (a relative, not|Based on book, not market, values | | |absolute, measure) |Influenced by GAAP choices | | |Provides...