Case Notes/Answers
The Battle for Value, 2004 FedEx Corp. vs. United
Parcel Service, Inc, By Robert F. Bruner, Sean Carr
Discussion Questions:
1. Prepare to describe in class the competition in the overnight package delivery industry, and
the strategies by which those two firms are meeting the competition. What are the enabling
and inhibiting factors facing the two firms as they pursue their goals? Do you think that either
firm can attain a sustainable competitive advantage in this business?
2. Why did FedEx’s stock price outstrip UPS’s during the initiation of talks over liberalized
aircargo routes between the U.S. and China? Assuming a perfectly efficient stock market,
how might one interpret a 14% increase in FedEx’s market value of equity?
3. How have FedEx and UPS performed since the early 1990s? Which firm is doing better?
In class, prepare to discuss the insights you derived from the two firms’ financial statements,
financial ratios, stock-price performance, and economic profit (economic value added or
EVA). Also, prepare to describe how EVA is estimated, and its strengths and weaknesses as
a measure of performance.
4. If you had to identify one of those companies as excellent, which company would you
choose? On what basis did you make your decision? More generally, what is excellence in
business?
, UV0161
Version 2.3
THE BATTLE FOR VALUE, 2004: FEDEX CORP.
VS. UNITED PARCEL SERVICE, INC.
Teaching Note
Synopsis and Objectives
Set in June 2004, this case invites the student to assess the financial performance of FedEx
Corp. and United Parcel Service, Inc (UPS). The two firms have competed intensely for dominance
of the overnight express package industry. This case is intended for use in an introductory discussion
of corporate value creation and its sources. It requires no 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:
Define excellence from a corporate-finance perspective. FedEx is operationally excellent, yet
this does not translate into financial excellence. This disparity invites the students to
consider the possible reasons, and to reflect on the long-term implications.
Assess economic profit analysis (also known as Economic Value Added) and, more
generally, the measurement of financial performance and health. The case provides a
complete historical economic profit analysis for both firms, and permits comparison with
other classic approaches to historical performance analysis. This comparison affords the
opportunity to discuss the attributes of healthy and successful companies, and to explore the
strengths and weaknesses of economic profit. Key learning points about economic profit
include its dependence on the conventions of generally accepted accounting principles
(GAAP) and its ignorance of strategic option value.
Evaluate the financial implications of rigorous competition and corporate transformation.
FedEx and UPS’s efforts to dominate the industry display most of the totems of the corporate
transformation movement of the last decade: customer focus, total quality management,
product innovation, re-engineering, alliances, and so on. These are a manifestation of Joseph
Schumpeter’s “gale of competition,” which results in a process of “creative destruction” in
capitalism. Here, the opportunity exists to help students see the forcefulness of this
competitive process, and its impact on financial performance.
The Battle for Value, 2004 FedEx Corp. vs. United
Parcel Service, Inc, By Robert F. Bruner, Sean Carr
Discussion Questions:
1. Prepare to describe in class the competition in the overnight package delivery industry, and
the strategies by which those two firms are meeting the competition. What are the enabling
and inhibiting factors facing the two firms as they pursue their goals? Do you think that either
firm can attain a sustainable competitive advantage in this business?
2. Why did FedEx’s stock price outstrip UPS’s during the initiation of talks over liberalized
aircargo routes between the U.S. and China? Assuming a perfectly efficient stock market,
how might one interpret a 14% increase in FedEx’s market value of equity?
3. How have FedEx and UPS performed since the early 1990s? Which firm is doing better?
In class, prepare to discuss the insights you derived from the two firms’ financial statements,
financial ratios, stock-price performance, and economic profit (economic value added or
EVA). Also, prepare to describe how EVA is estimated, and its strengths and weaknesses as
a measure of performance.
4. If you had to identify one of those companies as excellent, which company would you
choose? On what basis did you make your decision? More generally, what is excellence in
business?
, UV0161
Version 2.3
THE BATTLE FOR VALUE, 2004: FEDEX CORP.
VS. UNITED PARCEL SERVICE, INC.
Teaching Note
Synopsis and Objectives
Set in June 2004, this case invites the student to assess the financial performance of FedEx
Corp. and United Parcel Service, Inc (UPS). The two firms have competed intensely for dominance
of the overnight express package industry. This case is intended for use in an introductory discussion
of corporate value creation and its sources. It requires no 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:
Define excellence from a corporate-finance perspective. FedEx is operationally excellent, yet
this does not translate into financial excellence. This disparity invites the students to
consider the possible reasons, and to reflect on the long-term implications.
Assess economic profit analysis (also known as Economic Value Added) and, more
generally, the measurement of financial performance and health. The case provides a
complete historical economic profit analysis for both firms, and permits comparison with
other classic approaches to historical performance analysis. This comparison affords the
opportunity to discuss the attributes of healthy and successful companies, and to explore the
strengths and weaknesses of economic profit. Key learning points about economic profit
include its dependence on the conventions of generally accepted accounting principles
(GAAP) and its ignorance of strategic option value.
Evaluate the financial implications of rigorous competition and corporate transformation.
FedEx and UPS’s efforts to dominate the industry display most of the totems of the corporate
transformation movement of the last decade: customer focus, total quality management,
product innovation, re-engineering, alliances, and so on. These are a manifestation of Joseph
Schumpeter’s “gale of competition,” which results in a process of “creative destruction” in
capitalism. Here, the opportunity exists to help students see the forcefulness of this
competitive process, and its impact on financial performance.
