About the paper
The paper is being commissioned to analyze the trend in the capital expenditure of two leading companies in the courier delivery and freight services, Fed Ex and United Parcel Services (UPS), and how the same has changed over the period of past three years. In addition to the general discussion relating to the trend in the capital expenditure of the companies, we will also unearth the reason behind such trends and will also dig into the capital structure of the entities.
FedEx Corporation’s Capital Expenditure
2012: $4007 million
2013: $3375 million
2014: $3533 million
Referring to the annual report for the year 2013, we found that during the year, the company spent a total of $3375 million on its capital expenditure. However, the amount spent was 15.77% less than what it spent during 2012. However, the following year, during 2014, the capital expenditure amount was increased by 4.68%, with the amount increasing from $3375 million to $3533 million. The operating nature of the company’s activities is itself capital intensive, and the capital expenditure of the company is characterized by significant investments in the following categories:
United Parcel Service (UPS) Capital Expenditure
2012: $2153 million
2013: $2065 million
2014: $2328 million
Referring to the annual report of the company, we found that during 2013, the capital expenditure of the company was $2065 million, a reduction of 4.08% compared to what the company spent in 2012. However, during 2014, the amount of capital expenditure increased by 12.73% as the amount surged from $2065 million to $2328 million. The table below disclose the avenues of capital expenditure of the company:
Comparing Capital Expenditure of both the firms
As we noticed from the discussion in the previous section, both the entities reduced the capital expenditure during 2013, while the same improved marginally during 2014. However, while the trend is same, the spending pattern on the capital assets is different for both the companies during the past three years.
As for FedEx, the company cites segment wise explanation for the trend in its capital expenditure amount. During 2013, the decline in the capital expenditure by 15.77%, was attributed to decrease in purchase of aircrafts and equipment’s for FedEx Express, highest grossing segment of the company. However, the capital expenditure during 2014 was higher by 4.68%, amid increased spending for sort facility expansion and equipment at FedEx Ground and aircraft and related equipment at FedEx Express. In the external media release, FedEx has also declared that it will continue to focus on its ground segment, to benefit from the booming online industry and e-commerce shopping around the world. This will also allow the company to compete with its rival, United Parcel Service that is also expanding its operations to claim higher market share.
On the other hand, United Parcel Services (UPS) also slashed their spending on aircrafts and related equipment from 2012-2014. During 2013, the company spent $478 million on aircrafts purchase, while during 2014, the amount went down further to mere $44 million. The company cites that it decided to reduce its expenditure on aircrafts as it completed the scheduled deliveries of a previous order for the Boeing 767-300ERF aircraft, and do not need additional aircrafts for the time being. However, the entity increased their expenditure on the purchase of vehicles significant during 201, and spent $1061 million relative to $662 million in 2013, recording an increase of 60.27%. The company declared that the heavy expenditure to purchase additional vehicles was channelized in order to support the volume growth in its international package business and freight unit, as most of the existing fleet of vehicles were due for replacements and new vehicles were mandatory to sustain growth in the business activity of the company. In addition, the company also increased their capital expenditure on buildings and facilities from $483 million in 2013 to $808 million in 2014. This significant leap was adopted to include hub automation and capacity expansion projects in the U.S. during 2014, as well as expansion and new construction projects at facilities in Europe and Asia.
Conclusion
While we did find some notable trends in the capital expenditure of both the companies, another noteworthy point we unearthed was that FedEx has been plowing its operating cash flow back towards the capital expenditure of the company, its CAPEX amount as percentage of sales is also double than that of UPS. On the other hand, market analysts believe that capital expenditure pattern of UPS is out of its plan and it needs to avoid it.
References
(2014). Annual Report Page 27. FedEx Corporation.
(2014). Annual Report Page 59. United Parcel Services.
FedEx Corporation (FDX) Plans Capital Expenditure Of $4.6 Billion For FY16. (2015, July 25). Retrieved from http://www.bidnessetc.com/45666-fedex-corporation-fdx-plans-capital-expenditure-of-46-billion-for-fy16/
Motely Fool. (2015, July 25). Why Does United Parcel Service Trade at a Premium to FedEx? Retrieved from http://www.fool.com/investing/general/2015/03/16/why-does-united-parcel-service-trade-at-a-premium.aspx
