1. Financial management, April 2018
The battle for Value, 2004
FEDEX corp vs
UNITED PARCEL SERVICE, INC
Financial management, April 2018
Professor: Konan Chan
蔡澂萱
吳宜軒
吳幸儀
詹雅棠
阮清秀
余安珮

2. CONTENTS 1 Introduction 1-2 Comparison Profitability Analysis
2-2 Capital Use
3 Liquidity
4 Future growth
5 Conclusion

3. PART I
Introduction
Case Abstract and Question Set

4. 1 1 2 2 U.S-China Air-service Agreement Case summary Agreement
Opportunity
U.S-China
Air-service
Agreement 1 1
Allow additional 195 weekly flights and their carrier to serve any city in the other country
16.8% annual growth inter-Asia trade . China had been growing 30% a year.
China export-import market nearly 1 billion. 2
Both being granted a high degree of operating flexibility. 2
Goals ：
FedEx’s goal of producing “superior financial returns”, While UPS targeted “a long-term competitive return”.
Question：
Had the two firms achieved their goals ? Did their financial performance suggest their achievement in strong performance in the future?

5. FedEx I. Key Strategy： II. Successful reasons：
The largest venture-capital star-up (once)：
In 1971, Smith invested 4 million, raised 91 in venture capital.
I. Key Strategy：
Purchasing the planes it required
A hub-and-spoke distribution pattern
II. Successful reasons：
Deregulation
Operational strategy
Philosophy of “People-Service-Profit”

6. FedEx：Important stages
1976
1981
3.6 million profits
19,000 daily volume of packages
FedEx
Fierce industry competition
1983
1 billion revenue
1990s
First company ever to win Malcolm Baldrige National Quality Award
Future
2003
15.4 billion in assets
830 million net income
22.5 billion revenue

7. UPS II. Key Strategy： I. Key Success： Known as Big Brown：
Founded in By 1975, has reached a milestone to delivery to every address, and started its international strategy.
I. Key Success：
Efficiency：every route is time down to the traffic light.
II. Key Strategy：
Two-for-one stock split
Aggressive series of acquisition

8. 1975 1999 1988 2002 2003 UPS：Important stages UPS Future
Ｒeach the milestone
Delivery to Canada and Germany
UPS
Two-for-stock split
IPO, raising billion
1988
Enter European market by acquisition
2002
Domestic：76％
International：15%
Nonpackage：9％
Future
2003
Ｗider supply chain industry 3.2 trillion market）emphasis
28.9 billion in assets
33.4 billion in revenue
2.9 billion in profits

9. PART 1-2
Head to Head
Comparison of the two companies.

10. Fedex v.s. UPS UPS Fedex Ground vehicles 50,000 88,000 Aircraft 625
Fedex
UPS
Ground vehicles
50,000 
88,000
Aircraft
625
583
Full- and part-time employees
216,500
360,000
Freight volume
5.4 million
of packages shipped daily.
13 million packages and documents daily.
Assets
$15.4 billion
$28.9 million
Revenues
$22.5 billion
$33.4 million

11. Express-Delivery Market
Fedex
UPS
Customer Focus
Both carefully meet the customers’ needs and provide customized solutions.
Price competition
Higher
e.g., 2004, Residential premium-express $1.75
Lower
e.g., 2004, Residential premium-express $1.40
Information technology
Every package was logged into COSMOS.
Every package was logged into DIADs.
Service expansion
Fedex offer volume discounts and better quality.
Both offer Saturday pickups and deliveries.
UPS copied Fedex’s customer interfaces and Fedex bought $200 million in ground vehicles to match UPS.
Logistics services
Laura Ashley
Dell Computer

12. Profitability Analysis
PART 2-1
Profitability Analysis
Use Du Pont system to analyze the key factor which affected both companies’ performance.
ROA, ROE, EPS

13. Profitability Year UPS Fedex ROA ROE EPS($) 2003 10.44% 6.30% 19.51%
11.39%
2.57
2.79
2002
12.73%
6.38%
25.55%
10.85%
2.84
2.38
2001
10.68%
5.74%
23.41%
9.90%
2.13
2.02
2000
14.61%
7.32%
30.14%
14.38%
2.54
2.36
1999
4.91%
7.33%
7.08%
13.54%
0.79

14. Du Pont Analysis - ROA
The asset turnover of Fedex is relatively higher and more stable than UPS. However, the figure of operating profit margin of UPS is nearly twice as much as Fedex.
To sum up, UPS outperformed Fedex in operating profit margin, and managed its asset more efficiently.
ROA= net income + interest
assets
= sales x net income + interest
assets sales
(asset turnover) (operating profit margin)
ROA

15. Profitability Year UPS Fedex ROA ROE EPS($) 2003 10.44% 6.30% 19.51%
11.39%
2.57
2.79
2002
12.73%
6.38%
25.55%
10.85%
2.84
2.38
2001
10.68%
5.74%
23.41%
9.90%
2.13
2.02
2000
14.61%
7.32%
30.14%
14.38%
2.54
2.36
1999
4.91%
7.33%
7.08%
13.54%
0.79

16. Du Pont Analysis - ROE ROE ROE= net income Equity
= sales x net income + interest x assets x net income
assets sales equity net income+interest
(asset turnover) (operating profit margin)(leverage ratio) (debt burden)
As we can see from both figures of leverage ratio and debt burden, UPS and Fedex nearly had the same level of debt pressure, although Fedex used slightly higher financial leverage.
In conclusion, UPS had higher ROE than Fedex, and it also had more financial flexibility.

17. Profitability Year UPS Fedex ROA ROE EPS($) 2003 10.44% 6.30% 19.51%
11.39%
2.57
2.79
2002
12.73%
6.38%
25.55%
10.85%
2.84
2.38
2001
10.68%
5.74%
23.41%
9.90%
2.13
2.02
2000
14.61%
7.32%
30.14%
14.38%
2.54
2.36
1999
4.91%
7.33%
7.08%
13.54%
0.79

18. Earnings Per Share
The EPS of UPS soared from $0.79 to 2.54, which was almost the same standard as Fedex in 2000(the first year after UPS went IPO), then the average EPS of UPS from 2000 to was $2.52 which was $0.13 higher than Fedex.

19. Capital Use PART 2-2 WACC,EVA,MVA,STOCK PRICE
UPS created more wealth for shareholders than FedEX for having higher WACC, EVA and MVA. Investors used to prefer UPS, but after the agreement, FedEX’s stock price went higher than UPS.
WACC,EVA,MVA,STOCK PRICE

20. Capital Use WACC Analysis Fact
Weighted average of cost of capital －debt and equity.
Higher WACC means lower valuation and higher risk.
Fact
WACC of both FedEX and UPS has the tendency of going down.
Before 2000, FedEX had lower WACC, while from , UPS had lower WACC.
Analysis
We believe that UPS had lower risk and shareholders could get higher wealth from it.

21. Capital Use EVA Analysis Fact
A way to measure an operation’s real profitability by taking the total cost of capital into account.
Fact
FedEX’s annual EVA was negative in every year except 2003, leading to its cumulative EVA was also negative.
UPS’s annual EVA was positive every year, and its cumulative EVA showed growth in this time period.
Analysis
We believe that UPS was using their capital more wisely compared with FedEX during the time.
FedEX’s profit couldn’t meet their cost of capital at that time, which might cause financial problems.

22. Capital Use MVA Analysis Fact
The market value a company has created compared with its investment base.
Fact
UPS’s MVA was dramatically higher than that of FedEX, with the MVA in 2003 of and respectively.
Analysis
We believe that UPS had created higher market value until 2003, and had higher capability in creating wealth for shareholders.

23. Capital Use STOCK PRICE Analysis Fact
Stock price also reflect company’s value from the perspective of investors.
Fact
The stock price of UPS was higher than that of FedEX from 1999 to 2003.
Both companies’ stock price rose after the agreement, but FedEX’s price grew faster and later surpassed UPS.
Analysis
Before the air-transportation agreement, investors prefer UPS.
After the agreement, investors showed higher interests in FedEX, because it had the largest presence in China.

24. Liquidity & Leverage Analysis
PART 3
Analyze both companies’ liquidity ratio and leverage ratio to see which company was more flexible to its financing power.
Current Ratio, Cash Ratio, Long-Term Debt/Equity Ratio, Times Interest Earned

25. Liquidity
UPS had both higher current ratio and cash ratio than Fedex. In other words, it had greater repayment capacity and lower default risk than Fedex.

26. Times Interest Earned:
Leverage
Debt/Equity Ratio:
The figure of UPS reached its peak at 0.5 in 2001, after that, it declined to even slightly lower than Fedex in 2003, whereas the figure of Fedex fluctuated between 0.28 and 0.37, which is relatively stable.
Times Interest Earned:
The line graph of UPS shows an upward trend during the period. In addition, the figure was almost four-fold higher than Fedex in the last 2 years.
Conclusion:
UPS had significantly greater financing power than Fedex, and it would have less pressure to get loans on its capital investment.

27. Future Growth PART 4 Net Income Growth rate, Sales Growth rate
Despite UPS is superior to FedEx among many measures about profitability in present financial statement, FedEx might catch up from behind in the future. From the comparison of both sales and NI growth's rates, we predict that FedEx's profitability would be increased much more steadily in the future; moreover, FedEx is bullish for its potential of growth in the international package market.
Net Income Growth rate, Sales Growth rate

28. Future Growth Net Income Growth % UPS IPO lots of acquisitions
NI growths % shows how much the net income changes from one period to another.
Fact
FedEx and UPS both gained an negative NI growth % in
UPS’ NI growth %s are unstable. UPS got a high peak in but got three negative NI growth % about three years in five years.
Analysis
Comparing to UPS' unpredictable profit growth, we could predict FedEx's profitability would be increased much more steadily in the future.

29. Future Growth Sales Growth % Death Cross Fact Analysis
There is a death cross between 2000 to FedEx's sales growth % largely surpassed UPS' until the end of 2003.
The international package market is growing; however, the U.S. domestic package market is saturated. From Exhibit 7, we could find FedEx put more efforts on international market than UPS since 1992
Sales Growth %
Sales growth % shows the increase in sales over a specific period of time.
It is important for an investor to predict the demand for a company's products or services in the future.
Analysis
We predicted that FedEx would be bullish for its potential of growth in the international package market.

30. CONCLUSION PART 5 Past financial performance and future expansion
Which company is better to invest in?
Past financial performance and future expansion
Short term, long term decision
Facts

31. Financial performance
UPS
- Unstable
FedEx
Lower financial numbers comparing to UPS
Lower market share in the sector
Pros
Pros
Higher financial number: ROA, ROE, WACC, EVA, MVA, NPM
Higher stock price
More liquidity
More stable
Trend to catch and overpass UPS recently
Fixed cost structure
Cons
Cons

32. Non-financial index UPS FedEx Pros Pros Cons Cons
Lack of foreign market experience
Lack of infrastructure to expand foreign market.
FedEx
- Lack of regional presence for Ground service (insufficient vehicles)
Pros
Pros
Longer time and experience in the delivery service
Experience in the foreign market
Dominant in the China market
Logistic solutions, infrastructure for foreign market expansion. (more aircarfs)
Cons
Cons

33. Our decision Short term
For short term investment (<5 years), we recommend investors to choose UPS as it it predicted to maintian better financial performance
Long
term
Foreign market – expanding in to China
As the domestic market reached maturity, expansion to the foreign market is the must for both companies.
For long term investments, we recommend investors to choose FedEx, as the growth of foreign market – FedEx’s strength
FedEx already has the infracstrure for foreign market, leading to the capacity to serve additional business with little additional cost.

34. FACTS
Facts
Reality has shown that: since 2004, FedEx has gradually overcome UPS in the financial index and until 2014, they have almost the same market share in the globe. market.
Fact
There is a death cross between 2000 to FedEx's sales growth % largely surpassed UPS' until the end of 2003.
The ackage market is growing; however, the U.S. domestic package market is saturated. From Exhibit 7, we could find FedEx put more efforts on international market than UPS since 1992

35. THANK
YOU!