Fedex vs. Ups

THE BATTLE FOR VALUE, 2004 FEDEX CORP. VS. UNITED dowery SERVICE, INC. Executive Summary As the U. S. package rake business segment matured, International segment became the fighting ground for the two package deliverance giants FedEx and UPS. FedEx is considered to be the innovative, entrepreneurial, inventor of customer logistical management, and an ope balancenal leader. UPS, on the antithetical hand, is considered to be big, bureaucratic, and industry follower, although UPS is shedding this disconfirming image with newer innovations. FedEx Corp. pour downed in 1971, by the end of 2003 it had tight $15. million in summations, net income of $830 million on revenues of about $22. 5 zillion and shipped much(prenominal) than 5. 4 million packages daily. UPS, Inc. founded in 1907, by the end of 2003 it had $28. 9 billion in pluss, net income of $2. 9 billion on revenues of $33. 4 billion, and with excellent (AAA) bond rating. The spit out to deliver note comfort an d dominate the package gross sales pitch market between FedEx and UPS has r distributivelyed titanic proportions and clearly lucid 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 two companies argon matching each others investments in capital just about exactly. Placing ourselves in the centre of the battle of giants and exploitation the data reard in the points 1 through 11, we try to attend the following questions in this case analysis. 1 Who is creating more rate and how? 2 Who is destroying the value? FedExs issue outline is evolve superior pecuniary re wriggles for shareholders by providing utmost value added supply chain, transportation, business and related information work through focused operating companies competing collectively, and managed collaboratively under FedEx discolou balancen.UPSs harvest-home strategy is Serve the evalu ation distri furtherion, logistics and commerce inquires of customers with excellence and value in all services. With strong financials and broad employee ownership provide long- end point rivalrous returns to the shareholders. FedExs financial ratios are amend while UPS has far punter ratios in liquidity, leverage, and profit tycoon. UPS has consistently paid and change magnitude dividends while FedEx entirely started paying dividends in 2003. FedExs EPS comp. annual growth rate (CAGR) 1992 -2003 is 27. 54% compared to UPSs 13. 9%. However, since issue human race 1999, UPS has kick downstairs EPS Compounded Annual growth rate (CAGR) compared to FedEx 34. 30% vs. 6. 98%. UPS has far intermit Cum. Total market returns than FedEx 705. 95% vs. 528. 02%. UPS has far weaken EVA(2003) compared to FedEx $1,195 million vs. $ clxx million. MVA(2003) for UPS also far kick downstairs than FedEx $11,816 million vs. $69,315 million. By go steadying at the calculations to a gamey er place we offer clearly say that two UPS and FedEx created value, but UPS has created more value for shareholders than FedEx. Case Analysis pointWe start with analyzing both companies using the data provided in the book in the exhibits 1 through 11. We start the scotch profit analysis of both FedEx and UPS by review and analyzing the Return on brighten Assets (RONA). A Return on unclutter Assets ratio pay offs whether the insane asylum is financially better off than in preceding(prenominal) years by measuring total sparing return. A decline in this ratio may be appropriate and even warranted if it reflects a strategy to better fulfill the institutions mission. An ameliorate trend in this ratio indicates that the institution is increasing its net pluss and s likely to be qualified to set out financial resources pic to strengthen its future financial flexibility. facial expression at the chart get downd from data presented in Exhibits 9 & 10, suggests from 1992 t o 1994 the ratio for FedEx is improving while it is decreasing for UPS, although it is up to now well downstairs UPS figures. A quick look at Exhibit 4, we did not find some(prenominal) competitive developments to stick out the movement of the ratio for both companies. To get more insight into this movement for FedEx and UPS we tour the Activity Analysis specifically the Asset turn over ratios for both companies.Review the Fixed asset derangement and Total asset turnover for FedEx and UPS for the power point 1992-1994, it is observed that UPS is utilizing its assets better during this period see represent under. pic Although by itself this ratio number can be misleading, since companies with lower margins can have steeper asset turnover rations. In order to understand the very impact of asset turnover ratio we pick up to combine with margin ratio and then square off if its pricing strategy by UPS that is generating this high ratio or in fact UPS is such(prenominal)(p renominal) more efficient in using its assets than FedEx. feel at the numbers for this period for both companies using Exhibits 2&3, we observed that UPS has far better scratch profit margins compared pic to FedExs, that points to high asset turnover collect to its pricing strategy. As we see in the supra represent, UPS Asset ratios are declining while FedEx assets ratios are improving and correspondingly FedEx-RONA is also improving though absent tin can UPSs RONA ratio even though FedEx has greatly improved their asset turnover ratios, the Net Profit margins are whitewash well below UPS (see Net Profit Margin chart higher up). Does this designate UPS is creating more value than FedEx as shown by RONA representical record?We need more concrete data to answer this question. Although RONA has a strong virtue of usage, as compared to handed-down methods for measuring connection victor, is that it also considers the assets a company uses to achieve its output. However, RON A cant alone be used to determine who is creating value to destroying value, because managers cleverness revolve value-creating activities because they would reduce RONA (a risk if RONA is greater than WACC), or they might undertake value-destroying activities because they would increase RONA (if RONA is less than WACC).Moreover, since RONA does not explicitly measures capital charges, we need to go bad economic nurture Added to determine who is creating or destroying value. Ultimately maximizing EVA should instead be seen as the key financial success than maximizing RONA. pic Above graph shows from 1992 to 1994 both companies were destroying Economic value, UPS less than FedEx. 1995 UPS created $217 million value while FedEx was tacit in the disallow territory. This is when UPS launched guaranteed 8 A. M. overnight delivery (Exhibit 4 Timeline of Competitive Developments).This was frontal attack on FedEx who has offers 10 A. M. delivery (Exhibit 4 Timeline of Competitive Developments). UPS EVA dropped to negative $138 million due to the strike by its totality workers which cost UPS $700 million revenues. Interesting to see from the graph is that FedEx could not capitalize on this opportunity as its EVA was down by $215 million. In fact the graph shows, FedEx destroyed EVA from 1992 till 2002 and the only year it was able to create EVA was in 2003 by the amount of $170 million compared to UPS of $1,195 million.In year 2003, UPS EVA was whopping 703% more than FedEx. Reviewing numbers and graph, in the tech bubble of 2000-2002, UPS still maintain validatory EVA while FedEx delivered negative EVA. look at the above graph and correlating it against the Exhibit 4, the positive EVA of FedEx can be lined up with Kinkos Purchase in year 2003. pic Analyzing the cumulative Economic Value Added (EVA-Cum) graph, from year 1992 to 2003, FedEx destroyed $2. 2 billion ($2,252 Million) economic value while UPS has created $4. billion ($4,328 million) in economic value. This answers the questions put forward in the executive director summary. But we will go further and break apart the Market Value Added (MVA) for each company to support our argument that UPS created more value than FedEx. pic Since going public in 1999, UPS has created close to $70 billion in Market Value Added (MVA) as compared FedExs $11 billion MVA. This shows UPS has created substantial values for the shareholders far better than FedEx.Since FedExs MVA is not negative, it shows they did not destroyed value for the shareholders but UPS created more value for the shareholders. This is amazing execution for UPS that is considered big and bureaucratic while FedEx is considered the innovative. What is the key to UPSs success even being heavily recruit? The Key is efficiency. Business week wrote Every way of life is timed down to the traffic light. Each fomite was engineered to exacting specifications. And the drivers endure a daily purpose calibrated down to the minute . We can analyze UPSs efficiency by analyzing the ratios and comparing them against FedExs financial and analytical ratios. Using exhibits 2 and 3, graphing the data, comparison shows UPS drill ratios are weakening and FedEx is doing great job in improving. pic The intermediate days outstanding for UPS have increased from approximately 25 in 1992 to over 50 in 2003. FedEx on the other hand, has done better job to manage the average days outstanding. Average Days outstanding by itself doesnt imagine much and it must be analyzed with other activity ratios to shut result. pic The working capital turnover comparison shows except for 1993 FedEx has done better compared to UPS. The WC_Turnover for FedEx was 41. 25 in 2003 compared to 7. 72 for UPS, indicated FedEx is generated far more sales compared to cash it uses to fund these sales as compared to UPS. pic FedExs fixed and total asset turnover ratio is better than UPS. This indicates FedEx is using its asset better than UPS to gene rate sales. Although by itself this ratio number can be misleading, since companies with lower margins can have higher asset turnover rations.In order to understand the genuinely impact of asset turnover ratio we need to combine with margin ratio and then determine if its pricing strategy by FedEx that is generating this high ratio or in fact FedEx is much more efficient in using its assets than UPS. flavor at the numbers for 2003 for both companies, FedEx with 3. 69% Net profit margins compared to UPSs 8. 65% seems to have high asset turnover due to its pricing strategy. The above graph shows that activity financial ratios of FedEx are improving while they are weakening for UPS. nigh we analyze Liquidity Ratios of both companies to see which company has the ability to pay its obligations in timely manner with tokenish cost. pic The Current Ratio of UPS is better and improving than FedEx. The anomalousness in 1999 for UPS was due to the public offering of its securities. The gra ph shows both companies can service their short-term debt, its UPS that has more efficient operating cycle than FedEx. The graph shows FedExs CR is improving but still hobo its top competitor UPS. pic UPS has better cash ratio and thus can service its short term debt more comfortably than FedEx.This also indicates that UPS has less debt than FedEx too. The anomaly in 1999 is due to public offering of UPS securities. The graph shows UPS hard cash ratio offer better precaution of margin than FedEx when it needs to service its debt. Although FedExs Cash Ratio is improving but it is still behind UPS. Reviewing the Cash flow from operations ratio and defensive interval shows that UPS has better liquidity ratios than FedEx and can time lag short term cash requirement more efficiently, though FedExs ratios are improving.The above graphs show UPS has better liquidity ratios than FedEx. Now we review the semipermanent Debt and Solvency analysis of both companies. The below graph shows F edEx is more leveraged than UPS, though FedExs leverage position is improving. graphical record shows UPSs leverage was high in 2001 and 2002, we can find the answer in Exhibit 4 Timeline of Competitive Development UPS acquired all-cargo air service in Latin America 2000 and acquired Mail Boxes Etc. retail franchise in 2001. While in 2003 FedEx acquired Kinkos which could explained higher leverage compared to UPS. pic The Capital Expenditure Ratio shows, both companies actually almost matching each others Capital expense. Exhibit 4 Timeline of Competitive Developments shows the details of the major Capital expenses by both companies in competition to gain competitive advantage. Both companies made acquisitions to grow in different fields. pic The above graphs shows UPS is consistently leveraged low while FedEx is improving. Next we analyze the positiveness analysis for both companies. entropy from Exhibit 2 & 3 shows, FedExs profitability is worse UPS.PS beat FedEx in almost all profitability ratios by handsome margin. It is diaphanous from 2003 numbers for Net Profit Margins 3. 69% and 8. 65% for FedEx and UPS respectively. The following graph shows the comparison of profitability of both companies. pic Finally, we review the growth analysis of both companies. Exhibit 2 & 3, provides the picture that shows FedEx growth is higher than UPS. pic The below graphs summarizes and compares both companies EPS, Dividend payout, Stock expense, and PE ratios. picUPSs stock price shows since going public, it has delivered better value to its shareholders than FedEx. pic The above graph shows, UPS has consistently paid and increased dividends to its shareholders, while FedEx started dividend payout in 2003. pic UPS has a higher EPS growth than FedEx implies that FedEx has been unable to ingeminate net income growth into high EPS growth. Hence, our analysis conclude that both UPS and FedEx created value for their shareholders, but UPS created more value than FedEx i n the long run.