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FedEx Case Study Questions: Why did stock decline at the J.C. Penney announcement?

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Questions
1. Why did FedEx's stock decline at the J.C. Penney announcement?

2. Describe the competition in the overnight package delivery industry, and the strategies by which these two firms are meeting the competition. Do you think either firm can attain sustainable competitive advantage in this business?

3. How have FedEx and UPS performed since the mid-1980s? Which firm is doing better? Analyze in depth to discuss all insights you obtained from these firms' financial statements, ratios, stock price performance, and EVA. In your opinion, which firm is "excellently" managed?
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Why did FedEx's stock decline at the J.C. Penney announcement?
FedEx's stock declined at the announcement because.

Describe the competition in the overnight package delivery industry, and the strategies by which these two firms are meeting the competition. Do you think either firm can attain sustainable competitive advantage in this business?

FedEx's stock declined at the J.C.Penney announcement because J.C.Penney had awarded the largest and most concentrated contract to UPS. This was a business that had virtually been invented by FedEx however, UPS had taken it away from it and the contract would ensure good business to UPS for five years. Further, parts of the business of J.C.Penney that would have come to FedEx would now go to UPS. So the fall in the price of the stock of FedEx. UPS was the winner and FedEx was the loser. The world's largest package-delivery company, UPS transports more than 13 million packages and documents per business day throughout the US and to more than 200 countries and territories. It uses a fleet of more than 88,000 motor vehicles and nearly 600 jet aircraft to serve about 1.8 million shipping customers per business day. To expand its LTL services, the company has agreed to buy Overnite for $1.25 billion. The company also offers supply chain management services. Managers, employees, retirees, and the founders' families own 90% of UPS and control 99% of the voting power.

In an attempt to expand its foreign operations, UPS has announced that it will acquire LYNX Express, a UK-based delivery company, for a reported $96.5 million.

Sustainable competitive advantage is difficult for each company because of the strength of the competition. Archrival FedEx, through its FedEx Ground unit, has expanded its US ground delivery business, but UPS doesn't intend to give up market share without a fight. The company is offering faster ground delivery on certain key US routes; ad the planned acquisition of Overnite will only make the competition stiffer.

Nonpackage operations make up the fastest-growing segment of the company's business, and UPS is working to strengthen its supply chain management offerings. The company's supply chain group offers consulting, freight forwarding and logistics (UPS Supply Chain Solutions); mail sorting (UPS Mail Innovations), and financial services (UPS Capital). UPS in 2004 expanded its freight forwarding business by buying Menlo Worldwide Forwarding from CNF for $150 million and $110 million in assumed debt.

Other UPS businesses include postal and business services store franchiser Mail Boxes Etc., which maintains some 5,000 locations in the US and overseas. Most of the US franchises of Mail Boxes Etc. have been re-branded as The UPS Store.

To reflect the evolution of its mix of services, UPS in 2003 updated its company logo for the first time since 1961, losing the familiar package wrapped up in string. Brown remains the company's predominant color, but complementary hues are showing up on UPS aircraft and packages. Drivers' uniforms get the new logo but don't change otherwise.

In overseas markets, where UPS has yet to achieve its US dominance, the company is continuing to expand. It sees the Asia/Pacific region as particularly promising (30 new offices in China are expected to be open by 2006). UPS has taken control of major parts of its Chinese operations, which have been run in partnership with ...

Solution Summary

In a 2004 word solution, the response presents a comprehensive discussion of the question complete with balance sheet and income statement ratio analysis.

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