This paper presents a comparative financial performance assessment of UPS and FedEx, the two largest logistics and package-delivery firms in the world. Drawing on published annual reports, the paper provides selected financial data and applies ratio analysis across five dimensions: short-term solvency, long-term solvency, asset management, profitability, and market value. The analysis reveals that while UPS generates higher revenues and historically stronger profit margins, it carries significantly greater debt and shows declining equity. FedEx demonstrates a more stable profitability profile and lower leverage, presenting a comparatively lower-risk investment profile. Both firms are assessed as viable investments despite recent profit pressures from rising operating costs.
For any investor assessing potential investments, there will be an evaluation of the prospective investment using vertical and horizontal analysis of financial performance. Further context may be given to any such analysis by examining firms within a broader industry setting — for example, comparing two close competitors together. This report examines two major logistics firms, UPS and FedEx. The paper begins by reviewing the background of each firm, presents selected and pertinent financial data, and then undertakes a financial analysis using ratio analysis. The findings are then used to assess each company's performance as a potential investment.
UPS is the world's largest shipment firm; the company's full name is United Parcel Service (Yahoo Finance, 2014). The firm focuses on the delivery of packages, transport provision, logistics, and associated financial services, shipping approximately 15 million packages every day on a global basis to more than 6 million customers (Yahoo Finance, 2014). In the United States, the firm holds between 46% and 50% of the total domestic market (Diffen, 2014).
Globally the company operates in more than 220 countries, offering supply chain management and freight services. Its fleet consists of approximately 101,000 road vehicles, more than 31,000 containers, and the company operates its own airline (UPS, 2014; Yahoo Finance, 2014).
The firm was founded in 1907 and grew modestly at first, but in recent years it has pursued an aggressive growth strategy backed by significant acquisitions. For example, SonicAir was acquired in 1995, Challenge Air in 1999, Mail Boxes Etc., Inc. in 2001, and Menlo Worldwide Forwarding in 2004 (UPS, 2014). More recently, expansion plans were thwarted when the proposed $6.8 billion acquisition of TNT was blocked by the European Commission on the grounds that it would be detrimental to competition (Handy Shipping Guide, 2013).
FedEx is the world's second-largest shipment firm and operates in the same markets as UPS as a direct competitor. The firm, formerly known as Federal Express, adopted the shorter name in 2000 (FedEx, 2014). It handles more than 10 million shipments every day across more than 200 countries and 370 different service centers (FedEx, 2014). These services are supported by a fleet of more than 90,000 road vehicles, as well as the firm's own air carrier (FedEx, 2014). In the U.S., the firm holds approximately 49% of the market share (Diffen, 2014).
Founded in 1973, FedEx is younger than UPS but has adopted a similar growth strategy built around acquisitions. For example, the international logistics firm Tower Group International was acquired in 2000, as was the duty information company WorldTariff. In 2004, Kinko's Parcel Direct was acquired (FedEx, 2014).
UPS and FedEx are major players in the logistics and shipments industry. When comparing their financial results, it should be noted that their financial years are not exactly aligned: UPS's financial accounting year ends in December, whereas FedEx's ends in May. The following financial analysis uses the most recent accounts published by both companies. All figures, except per-share figures, are shown in U.S. dollars (millions) and are taken from the relevant annual reports.
An examination of their financial results indicates that UPS is the larger of the two firms, with a higher turnover. Both UPS and FedEx have been showing growth, although this slowed in the most recent financial year. Both organizations have also been showing an increased level of gross profit, but differences become apparent when examining net profit after tax. Both companies appear to have experienced a proportional increase in operating costs, as well as one-off costs for UPS. In both cases, the most recent financial year showed a decrease in net profit, but the decrease is most significant for UPS. This declining profit also impacts earnings per share. UPS appears to have undertaken a share repurchase scheme that helps mitigate some of the decline in net profits, but there is still a significant decrease between December 2011 and December 2012. FedEx also shows a significant decrease, but it is proportionately smaller than UPS's; additionally, FedEx has no change in the number of outstanding shares.
When examining financial data, it may also be argued that figures important to shareholders include the total level of debt and the total level of equity. In both companies there has been an increasing level of debt, but this has risen more rapidly at UPS, indicating a higher degree of leverage. Higher leverage may equate to higher risk, but it may also result in higher returns at a future date as the money is invested and generates returns (Mintzberg et al., 2011). A possible cause for concern for shareholders is the decrease in equity at UPS that accompanies the increase in debt.
The increasing debt at FedEx is more constrained; shareholders are likely to be more satisfied, as the overall level of equity is increasing.
Table 1: Financial Data (all figures in U.S. $ millions except per-share figures)
UPS — Financial Year Ending: Dec-10 / Dec-11 / Dec-12
Revenue: 49,545 / 53,105 / 54,127
Gross profit: 38,802 / 40,541 / 41,455
Net profit (after tax): — / 3,488 / 3,804 / 1,452
Earnings per share (basic): 3.51 / 3.88 / 0.84
Total debt: 25,618 / 27,666 / 34,210
Total equity: 7,979 / 7,035 / 4,653
FedEx — Financial Year Ending: May-11 / May-12 / May-13
Revenue: 39,304 / 42,680 / 44,287
Gross profit: 27,500 / 29,409 / 30,360
Net profit (after tax): 2,032 / — / 1,561
Earnings per share (basic): 4.57 / 6.44 / 4.95
Total debt: 12,165 / 15,176 / 16,169
Total equity: 15,220 / 14,727 / 17,398
As of 19 February 2014, the closing share price for UPS was $95.18, and over the preceding 52 weeks the share price ranged between $81.51 and $105.37, with dividends providing a 2.61% yield (Yahoo Finance, 2014). The FedEx share price was higher, closing at $131.35, with a range of $90.61 to $144.39 over the preceding 12 months and a dividend yield of 0.44% (Yahoo Finance, 2014).
"Solvency, asset management, profitability, and market value ratios"
"Synthesis of ratio findings into investment-oriented conclusions"
FedEx. (2011). Annual Report 2011. Retrieved 19 February 2014 from
Handy Shipping Guide. (2013, January 15). Major express freight and logistics merger torpedoed by European Commission. Retrieved 19 February 2014 from
Mintzberg, H., et al. (2011). Strategy Safari. FT Prentice Hall.
UPS. (2014). Home page. Retrieved 19 February 2014 from www.ups.com
UPS. (2013). 2012 Annual Report. Retrieved 19 February 2014 from http://investors.ups.com
UPS. (2011). 2010 Annual Report. Retrieved 19 February 2014 from http://investors.ups.com
Yahoo Finance. (2014). UPS profile. Retrieved 19 February 2014 from
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