Can United Parcel Service Inc. (UPS) and FedEx Corporation (FDX) Deliver E-Tail Profits?

If it has been stealing market share from Big Brown, it hasn’t exactly been eating UPS’s lunch. Revenue at FedEx has grown at an annual average of about 6.7% since 2009. At UPS, that growth has come in at about 6.5%. On a dollar basis, UPS has still grown revenue faster.

FedEx does not have as strong a track record of good management as UPS. Return on equity is one metric investors can use to get some insight into how well a company is managed. In a nutshell, it shows how much profit a company is generating with the money that shareholders have invested.

Let’s take a quick look at how UPS and FedEx have delivered:

UPS Return on Equity data by YCharts

As you can see, FedEX has lagged its larger rival in this regard, and by no small margin. Although FedEx is the smaller company, it is not the more nimble of the two.

But the company has eyes on changing that. It has plans for a major reorganization starting this year. It sees this plan turning FedEx into a leaner, more nimble operator. It also expects the plan to pad profits by $1.7 billion over the next three years. But it will also have major upfront costs, mostly in the form of voluntary cash buyouts to workers in an effort to lower payroll. FedEx expects those expenses could hit $650 million. That could be a significant drag on earnings in the near term, even if it does position the company better for the future.

Stand on history, or bet on change

Neither of these package-delivery companies have the boundless e-tail growth potential of Amazon. But both present lower-risk opportunities to cash in on the growing e-tail trend. UPS brings a stronger track record of delivering return to investors, as well as a nice dividend. However, if FedEx is right, and the company continues to take market share, it could be the more compelling buy long term, especially if its planned reorganization creates the efficiencies the company hopes it will.

The article Can These Companies Deliver E-Tail Profits? originally appeared on Fool.com and is written by John-Erik Koslosky.

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