Stock Wars: FedEx Vs. UPS

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector with the goal of determining which company is the better investment.

This week, the duel is between two courier delivery services: FedEx Corporation FDX and United Parcel Service, Inc. UPS.

The Case For Fedex: This company was founded in 1971 by newly-minted Yale University graduate Frederick W. Smith as Federal Express Corporation. Originally based in Little Rock, Arkansas, Smith moved his business to Memphis in 1973. During the late 1970s and early 1980s, the company’s prominence was enhanced with an aggressive marketing campaign featuring television commercials that carried the catchy slogan “When it absolutely, positively has to be there overnight.”

Today, FedEx serves more than 220 countries and territories while operating its air-ground express service through more than 650 airports worldwide. The company has a global workforce of 560,000 employees.

In its most recent corporate developments, FedEx addressed growing issues concerning supply chain disruptions and labor shortages with a report highlighting how the company’s 375,000 U.S.-based workers represented a 9.4% increase in employment from one year ago. At the same time, however, the company also announced its partnership with the autonomous technology developer Aurora and the vehicle manufacturer PACCAR on adapting the latter’s autonomous vehicle platform-equipped trucks within FedEx’s linehaul trucking operations.

Also as a sign of the times, FedEx announced a fuel surcharge increase was applied to its Express, Ground and Freight shipments starting Nov. 1, while FedEx shipping rates will go up by an average of 5.9% starting in 2022.

In its most recent earnings report, the FY2022 first-quarter data published on Sept. 21, FedEx reported revenue of $22 million, up from $19.3 billion one year earlier. The company’s $1.1 billion in net income was down from the previous year’s $1.25 billion, while its diluted earnings per share of $4.09 was down from $4.72 one year earlier.

The company attributed the quarterly results to a $450 million year-over-year increase in costs exacerbated by what the earnings report described as “a constrained labor market which impacted labor availability, resulting in network inefficiencies, higher wage rates, and increased purchased transportation expenses.” Complicating matters was an increased level of package volume running into continued supply chain disruptions.

Looking forward, FedEx stated it was to forecast its fiscal 2022 mark-to-market retirement plan accounting adjustments, thus making it unable to offer a fiscal 2022 earnings per share or effective tax rate outlook on a GAAP basis. The company also reduced its earnings outlook based on the first-quarter results, which were lower than the forecast offered in June.

“The FedEx teams continue to diligently deliver for our customers under unique and challenging circumstances,” said Raj Subramaniam, FedEx president and COO. “The current labor environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus and we are making investments in resources and capacity to meet our customer’s needs.”

FedEx opened for trading on Wednesday at $253.19, sandwiched between its 52-week range of $216.34 to $319.90.

Related Link: The complete Stock Wars series

The Case For UPS: In 1907 Seattle, 19-year-old James Casey founded the American Messenger Company on a $100 budget. For its first six years, deliveries were primarily done by foot or on a bicycle — the company’s first vehicle, a Model T Ford, wasn’t acquired until 1913.

Not unlike FedEx, the Atlanta-headquartered UPS serves 220 countries and territories. The company serves 401 domestic airports and 406 international airports and has a workforce of more than 500,000 employees.

In its recent corporate developments, UPS addressed concerns on labor levels by seeking to hire more than 100,000 seasonal workers. The company is also placing a renewed emphasis on the Asian market, promoting Bernard Jiang from president for UPS in the south Asia Pacific to president of UPS China while promoting Michelle Ho from the president of UPS China to president of its Asia Pacific region, the first woman to hold the position.

In its most recent earnings report, the third-quarter data published Oct. 26, UPS reported $14.2 billion in revenue for its U.S. operations, up from $13.2 billion one year earlier, and $4.72 billion from its international operations, up from $4.08 billion one year earlier. The company reported a net income of $2.32 billion, compared to $2.38 billion in the previous year, and its $2.65 diluted EPS was lower than the $2.71 from third-quarter 2020.

CEO Carol Tomé announced the quarterly earnings by noting that the “actions we are taking under our better not bigger strategic framework to improve revenue quality, enhance productivity and remain disciplined on capital allocation are driving our positive financial performance.”

UPS opened for trading on Wednesday at $211.95, closer to its 52-week high of $220.24 than to its 52-week low of $154.76.

The Verdict: Both FedEx and UPS are solid stocks, although UPS has been somewhat more vibrant recently. And both companies are coming into the year-end holiday season with the prospect of large parcel volumes, which will certainly enrich their respective coffers.

Both companies are pushing back against labor market challenges, and while seasonal hiring spikes will help carry the workload through the holidays and into 2022, both companies need to have a strong game plan to move forward into a new year that is getting off on the wrong foot thanks to supply chain disruptions and abnormally high inflation.

For this Stock Wars duel, the nod goes to FedEx for its pessimistic honesty in acknowledging this sector is facing significant challenges. The FedEx earnings report clearly explained why the quarterly net income fell year-over-year and company president Subramaniam’s frankness was a welcome blast of transparency — and while FedEx customers are probably not giddy over the prospect of paying more in 2022, the company was honest in giving a four-month heads-up on the hike.

In comparison, the UPS earnings report did not touch on the problems facing this sector, nor was an explanation given on the drop in net income and the diluted EPS. And the company’s earnings call was optimistic to the point of being Pollyannaish.

While no one likes to accentuate the negative, FedEx’s admission that the sector — and, by extension, the wider economy — is in a rough patch is deserving of appreciation.

Photos: Cover picture by Mohamed Hassan / Pixaby;  FedEx and UPS photos by Mike Mozart / Flickr Creative Commons.