Ali vs. Frazier. Roger Moore vs. Sean Connery. Ginger vs. Mary Ann. Although these are some of the greatest rivalries in history, there is one contest between two giants of the logistics sector that dwarfs all others: UPS (NYSE: UPS) vs. FedEx (NYSE: FDX). That conflict has heated up recently with new acquisitions and deals from both companies. Let's examine some of these transactions and the potential impact they could have for UPS, the leader in logistics.
Brown never looked so good
On July 13, UPS announced that it will have completed its acquisition of TNT Express by the end of 2012. TNT Express is a leading international logistics company, serving more than 200 countries with a fleet of more than 30,000 trucks and planes. Right now 26% of UPS' profits come from outside the U.S. The company expects TNT Express to bump that share up to 36%. Thus, TNT will dramatically increase UPS' global reach, and will help Big Brown compete on a larger scale with FedEx.
Winning brownie points
FedEx may have some issues with its largest client: the United States Postal Service. FedEx has a contract with the USPS worth about $1.5 billion which lets FedEx use its vast armada of airplanes to provide overnight and express shipping. The contract is set to end in September 2013, and many expected the Post Office to simply renew it with FedEx. But earlier this week the Post Office announced it will seek bidders for the contract when it expires.
This announcement has thrown the future into doubt. Immediately after the Post Office's announcement, UPS declared it intended to bid for the contract. Even if UPS doesn't win the contract, the cost of outbidding UPS may cut into FedEx's profits. Still, that's a much better option than letting UPS put its brand in every Post Office around the US.
How now, brown cow?
A comparison of both companies suggests that, while FedEx may be cheaper, it doesn't have anywhere near the dividend that UPS does.
|
Company |
P/E |
Dividend Yield |
Payout Ratio |
Net Margin |
Year-Over-Year Revenue Growth |
|---|---|---|---|---|---|
| UPS | 20.20 | 2.8 | 54% | 7% | 5.3% |
| FedEx | 14.50 | 0.6 | 8% | 5% | 5.2% |
| Industry Average | 22.50 | 2.1 | 37% | 6% | N/A |
Sources: Fool.com and SEC filings.
UPS is also growing slightly faster than FedEx, and that growth will accelerate thanks to this deal with TNT. If UPS can manage to win the Post Office's contract, the company will only widen the gap between itself and FedEx even further. The only question now: What CAN'T Brown do for you?
I don't really know what Brown can't do, but I'll tell you what it can: generate industry-beating dividends. If you love investing in companies like this and want to find others that will bring you more income in the future, then check out our special free report right now: "Secure Your Future With 9 Rock-Solid Dividend Stocks."
