FedEx and UPS saw their stock prices rise in early 2004 due to a landmark air transportation agreement between the US and China that opened new cargo routes. FedEx outperformed UPS, with its stock price rising almost 5 times faster, due to FedEx having a larger existing foreign presence and operations in China. While UPS focused on maintaining its status as the industry's low-cost provider and invested heavily in technology and facilities, FedEx successfully entered the overnight delivery market through Smith's strategy of large capital investments and a hub-and-spoke distribution system. An analysis of financial metrics from 1992-2003 showed UPS generally outperformed FedEx in measures of activity, liquidity, solvency, profitability, and growth.

1. THE BATTLE FOR VALUE, 2004:
FEDEX CORP. VS. UNITED
PARCEL SERVICE, INC.
GROUP MEMBERS:
1328350 ANIS SYAZIANIE BINTI CHE MOHD ZAIMI
1321976 AFIFAH NABILAH BINTI MOHD SAFEI
1329010 MUNIRAH BINTI RAMLI
1322836 RUZANA BINTI SUHAIMI
1323568 SHARINA AZLEEN BINTI ERMAN EFENDI

2. BACKGROUND OF THE CASE
June 18, 2004:
United States + China = a
landmark air-
transportation agreement.
Permitted to serve the
vast Chinese market.
How those new cargo
routes would be allocated
between UPS and FedEx?
Industry observers wondered how
the titanic struggle between FedEx
and UPS would develop, particularly
for investors in both firms.
What had been the impact
of the intense competition
between the two firms?
Which firm was doing better?

3. BACKGROUND OF FEDEX
FedEx
Founded in
1971
In 1981, generated
high revenue, but,
competition started
to rise
1990s, won the
prestigious
Malcolm
Baldridge
National Quality
Award
Deregulation
Strategy,
Operational
Strategy and
philosophy of
‘People-Service-
profit’
By the end of 2003,
FedEx had nearly
$15.4 billion in assets
and net income of
$830 million on
revenues of about
$22.5 billion
Has about 50, 000
ground vehicles, 625
aircraft, 216,500 full-
and part-time
employees, and
shipped more than 5.4
million packages daily

4. BACKGROUND OF UPS
United
Parcel
Service,
Inc (UPS)
Founded in
1907
The largest
package-
delivery
company in
the world
Industry’s low cost provider,
had been investing heavily in
information technology, aircraft,
and facilities to support service
innovations, maintain quality
and reduce cost.
By 2003, UPS offered
package-delivery services
throughout USA, and moved
more than 13 million
packages and documents
through network everyday.
At year-end 2003, UPS
reported assets,
revenues and profits of
$28.9 billion, $33.4
billion and $2.9 billion

5. QUESTION 1
What happened to FedEx and UPS’S
stock price in early 2004? Why did they
rise? Why did one outpace the other?

6. What happened to FedEx and UPS’S stock
price in early 2004? Why did they rise?
• The stock price rises and FedEx outperformed UPS by almost 5
times faster.
• The stock price rise due to the landmark air-transportation
agreement between US and China.

7. Why did FedEx outpace UPS?
Has largest foreign presence in China
 11 weekly flights
Virtually invented customer logistical management
 Innovative, entrepreneurial and operational
leader
The volumes had grown more than 50% between 2003 and 2004
Serves 220 Chinese cities
 Flew directly to Beijing, Shenzhen and Shanghai

8. QUESTION 2
Why didn’t UPS create overnight
delivery? How did FedEx get away
with successfully entering this market?

9. Why didn’t UPS
create overnight
delivery?
High cost
Building an air
fleet
Low-cost
provider
How did FedEx get
away with
successfully
entering this
market?
Smith’s strategy
and Large
Investment of
Capital
Hub-and-Spoke
Distribution

10. QUESTION 3
How have UPS and FedEx
performed financially?

11. FINANCIAL PERFORMANCE
Activity
Total Asset
Turnover
Liquidity
Current Ratio
Defensive
Interval
Solvency
Debt-Equity Ratio
Times Interest
Earned
Profitability
Profit Margin
ROA
ROE
Growth
Sales
Net Income

12. ACTIVITY : TOTAL ASSET TURNOVER
0
0.5
1
1.5
2
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
TotalAssetTurnover
Year
TOTAL ASSET TURNOVER
UPS FedEx

13. LIQUIDITY: CURRENT RATIO
0
0.5
1
1.5
2
2.5
3
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
CurrentRatio
Year
CURRENT RATIO
UPS FedEx

14. LIQUIDITY: DEFENSIVE INTERVAL
0
1
2
3
4
5
6
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
DefensiveInterval
Year
DEFENSIVE INTERVAL
UPS FedEx

15. SOLVENCY: DEBT-EQUITY RATIO
0
0.2
0.4
0.6
0.8
1
1.2
1.4
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
Debt-EquityRatio
Year
DEBT-EQUITY RATIO
UPS FedEx

16. SOLVENCY: TIMES INTEREST EARNED
0
5
10
15
20
25
30
35
40
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
TIERatio
Year
TIMES INTEREST EARNED RATIO
UPS FedEx

17. PROFITABILITY: PROFIT MARGIN
-4
-2
0
2
4
6
8
10
12
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
ProfitMargin(%)
Year
PROFIT MARGIN
UPS FedEx

18. PROFITABILITY: RETURN ON ASSETS
0
2
4
6
8
10
12
14
16
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
ROA(%)
Year
RETURN ON ASSETS (ROA)
UPS FedEx

19. PROFITABILITY: RETURN ON EQUITY
-10
-5
0
5
10
15
20
25
30
35
‘92 ‘93 ‘94 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03
ROE(%)
Year
RETURN ON EQUITY (ROE)
UPS FedEx

20. GROWTH: SALES
0
5
10
15
20
25
30
35
40
’92-‘93 ’93-‘94 ’94-‘95 ’95-‘96 ’96-‘97 ’97-‘98 ’98-‘99 ’99-‘00 ’00-‘01 ’01-‘02 ’02-‘03
SalesGrowthRate(%)
Year
SALES GROWTH
UPS FedEx

21. GROWTH: NET INCOME
-200
-100
0
100
200
300
400
’92-‘93 ’93-‘94 ’94-‘95 ’95-‘96 ’96-‘97 ’97-‘98 ’98-‘99 ’99-‘00 ’00-‘01 ’01-‘02 ’02-‘03
NetIncomeGrowthRate(%)
Year
NET INCOME GROWTH
UPS FedEx

22. FINANCIAL
ANALYSIS
UPS FEDEX
1. Activity • Weak performance since 1992. • Gradually better performance in asset
management.
2. Liquidity • Better performance in liquidity.
• Higher rates in both current ratio and
defensive interval than FedEx.
• Weaker performance in liquidity.
3. Long-Term Solvency • Better performance in solvency.
• Gradual improvement in the debt-equity
ratio
• Higher rates inTIE ratio than FedEx.
• Weaker performance in solvency.
• Rapid decline debt-equity ratio and
gradually increasing inTIE ratio.
4. Profitability • Consistently beats FedEx.
• Profit Margin, ROA and ROE higher than
FedEx.
• Gradually positive improvements, but,
still lower than UPS.
5. Growth • Shows improvements in growth, but, still
below FedEx.
• Shows better performance in sales and
net income growth.

23. QUESTION 4
What does the stock-price
performance tell you?

24. P/E Ratio
0
10
20
30
40
50
60
70
80
90
100
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
P/E Ratio
UPS FedEx
• Conveys the market’s value of a firm’s share
relative to the earnings actually generated
• Fluctuate
• UPS has been slightly higher than FedEx since
1999
• High earning, high P/E ratio

25. Stock Price
• Increase steadily
• Advantage on stock split (UPS)
• External info on agreement China
• Economic condition- investor confident
• Cumulative compound annual return for UPS
and FedEx was 705.95% and 528.02%
0
10
20
30
40
50
60
70
80
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Stock Price
UPS FedEx

26. QUESTION 5
If you had to vote for one of these
two firms to enter the pantheon of
excellent companies, which would
you choose?

27. STRATEGIC
COMPONENT FEDEX UPS
MISSION
Superior financial returns for
shareowners
 Providing high value-added supply
chain
Sustaining a financially strong company
 Broad employee ownership
LABOUR
FORCE
“People, Service, Profit”
 Emphasizes employee participation
 Allows for a non-unionized labour
force that works to achieve the goals
of the company.
 Does not allow for flexibility in
employee schedules.
 Resisted by the company’s heavily
unionized workforce.
INFORMATION
TECHNOLOGY
Invests for improving quality delivery
service
 COSMOS
(Customer-Operation-Services, Master
Online System)
Invests as a means of improving efficiency
 DIADs
(Delivery Information Acquisition Devices)

28. CHARACTERISTIC FEDEX UPS
FINANCIAL
MEASUREMENT
• Improving • Better
NON-FINANCIAL
MEASUREMENT
• Better
- Cost production
- International sector:CHINA
• Less performed
- 60% growth in traffic
ADVANTAGE • Share price 5 times growth
• Purchase their own planes
earlier
• Largely free union
• more financially conservative
(EVA)
• long-term goal policy
advantages
CHALLENGES • Slow financial performance
- Operations in Europe
resulted in low operating
profits and low EVA and MVA
• Problem
- Quality, union strikes,
slow plodding
- Late overnight market
entry

29. ECONOMICS VALUE ADDED (EVA)
UPS gain higher EVA
0
200
400
600
800
1000
1200
1400
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
FedEx
UPS

30. RECOMMENDATION
UNITED PARCEL SERVICE
Investor’s confident
Competitive based on financial measurement
more to the effectiveness of management
Less risky
Can be improve and survive in long run

31. THANK YOU