Reference no: EM132483107

The Battle for Value, 2016: FedEx Corp. versus United Parcel Service, Inc.

Case Introduction/Overview

Set in April 2016, this case invites students to assess FedEx Corp.'s and United Parcel Service, Inc.'s (UPS's) financial performance. The two firms have competed for dominance of the package-delivery industry. This case is intended for use in an introductory discussion of corporate value creation. It requires few numerical computations from the student; rather, the tasks for the student are to interpret the results and to reflect upon their implications. The contrasting record of the two firms affords a platform to:

• Assess and compare the financial performance and health of two organizations. The case provides historical financial, market, and economic profit analysis for both firms. The case provides a stark contrast between backward-looking financial performance and forward-looking market expectations of performance.
• Motivate definitions of corporate excellence, with particular emphasis on comparing operational and financial excellence.
• Evaluate the financial implications of competition and corporate transformation.

Case Report Instructions

This is a "Directly answer a set of questions" case report. For this case study, answer each of the following questions (as per the guidelines in "Learning with Cases and Writing Case Reports").

1. What is going on in the package-delivery industry?

2. Do you see this market as highly competitive? Why or why not? How are the two firms competing? What are the competitive prospects for the foreseeable future?

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

4. Are the operational metrics related to the financial metrics? For example, how is the superior-ranked UPS brand score related to the financial metrics, or how is the superior-ranked FedEx employee satisfaction score related to the financial metrics?

5. How is it that UPS has managed to achieve such an impressive ROE figure? A powerful way to explore this question is to decompose the ROE into three components: Margin (Net profit / Revenue), Turnover (Revenue / Total assets), and Leverage (Total assets / Book equity). Then compare each of these elements across the two firms over time.

6. What is economic profit and what does it measure?

7. What does stock performance tell us? How can FedEx's stock-price performance be superior when UPS's financial ratios are so much better? In answering this question, you should address the difference between backward-looking financial ratios and forward-looking stock-price performance.

8. How do investors justify a higher PE ratio for FedEx?