United Parcel Service, Inc - a Strategic Analysis Report

UNITED PARCEL SERVICE, INC

A Strategic Analysis Report Submitted in Fulfillment

of the Requirements for the

Course, MBA 6180, Strategic Business Management

Prepared by

Lisa Marie Marshall

April 26, 2016

Contents

Introduction        

History        

Financial Analysis        

Ratios        

Debt to Equity Ratio        

Current Ratio        

Return on Equity (ROE)        

Profit Margin        

Quick Ratio        

WACC        

DUPONT        

External Analysis:        

PESTEL        

PORTERS        

Internal Analysis        

Strategic alternatives        

Recommendation:        

References        

Introduction

United Parcel Services, (UPS) is one of the largest package/delivery companies in the world.  Being the dominating delivering company in the world, it must mean that they have done something right. After an in depth analysis, it will be simple to see the reasons why UPS has realized an insuperable amount of success and gained primary preference by its customers.  By reviewing its history, analyzing financial records, and keying in on external and internal factors that are present in the industry, it will be easy to see why they have the competitive advantage. Understanding the threats and opportunities that are available in the industry will guide strategic alternatives and recommendations for future growth. By warring of the negative industry pressures they will have to make changes to have a sustainable competitive advantage.

History

In 1907, in Seattle Washington, Jim Casey and Claude Ryan started the American Messenger Company, a small phone message service. Soon after, they started delivering small “parcels” for local department stores and in 1913 changed the company's name to Merchants Parcel Delivery.  The company gained notice in 1972 when the U.S. Postal Service named UPS as a competitor.  

Not without adversity did they make changes to embed a positive culture in their organization. In 1994 Teamsters staged a one-day strike to protest UPS's new per-package weight limit (raised from 70 to 150 pounds). The next year the firm allowed rank-and-file employees to buy UPS stock. Nevertheless, in 1997 UPS was hit by a 15-day Teamsters strike that cost the company millions of dollars. UPS settled the strike by combining part-time jobs into 10,000 new full-time positions; in 1998 the company headed off another labor threat by giving its pilots a five-year contract with pay raises.

There was a great demand for even quicker service, so UPS entered the overnight air delivery business. By 1985, UPS Next Day Air service was available in all 50 states and Puerto Rico.  Just two years later UPS gained consent from the FAA to operate its own aircraft, therefore launching UPS Airlines.  UPS was the fastest air lines start up in FAA history. Today it is the eighth largest airline.

Over the past 100 years, UPS has become an expert in transformation, growing form a small messenger company to a leading provider of air, ocean, ground, and electronic services.  In 2003 the company introduced a new brand mark, representing a new evolved UPS and showing the world that its capabilities extend beyond small package delivery.  The company went another step further, adopting the acronym UPS as its formal name, another indicator of its broad expanse of services.  It still maintains its humble reputation for integrity, reliability, employee owner ship, and customer service.  

UPS offers a broad array of services in the package/delivery industry and, therefore, compete with many different companies and services on a local, regional, national and international basis. Their competitors include the other nation’s postal services, various motor carriers, express companies, freight forwarders, air couriers, Union Pacific Corp, and such as FedEx. UPS and FedEx have many similarities. They both are leading competitors in supply chain solutions.  They both look for ways to help their companies improve their supply chain.  They also both have employee stock ownership, which offers stock first to the employees.

Financial Analysis

The below financial analysis will compare  UPS to its largest rivals FedEx and Union Pacific Corp as well as show its position compared to the overall industry. Analyzing the following financial components not only allows us to identify why UPS has been successful but also to detect gaps and opportunities for improvements.  

Ratios

Debt to Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a company's total liabilities by its stockholders' equity. This ratio shows how much debt a company is using to finance its assets relative to the amount of shareholders' equity. In the figures below you can see that United Parcel Service Inc.'s debt-to-equity ratio grew from 2013 to 2015, as did their competitors. UPS has a debt to equity of 5.8 meaning that the debt holders have 5.8 times more claim on the assets than the equity holders, or for every dollar of equity there is 5.8 dollars of debt. UPS has a much higher debt to equity ratio than that of its competitors, meaning that UPS has been aggressive in financing their growth with debt. Occasionally, when a firm has a high debt to equity ratio it results with volatile earnings (YCHARTS, 2016). However, UPS earnings have been growing relatively steady.

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Figure 1                                                        Figure 2

Because their debt to equity ratio is so much higher than that of their competitors I would question how they are using their debt.  As we will see in further analysis, their returns to shareholders are higher than their debt costs, meaning that are using this debt wisely on respectable investments.

Because they have financed themselves with debt I would expect them to be highly susceptible to economic factors, discussed later in the PESTEL analysis.