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UPS (NYSE:UPS) offers logistics, delivery, transportation, supply chain, forwarding and mail services in 220 countries and territories. The company operates freight ships, trains, trucks, and cargo planes in order to offer these services. Its giant delivery fleet consists of 101,000 vehicles, and the company delivered 4 billion packages in 2011. It looks as if UPS is already a giant corporation, but can it see further growth? My answer is yes. Here is how UPS will continue to grow.

Acquisition of TNT Express

Recently UPS took a giant step and acquired TNT Express for $6.17 billion. For UPS, buying the Dutch company makes a lot of sense with regard to its goal of becoming the largest logistics company in the world. Last year, the two companies had a combined revenue of $60 billion. As a result of the acquisition, UPS' delivery capabilities in Europe will increase significantly given that TNT was very strong in the European logistics market. In addition, TNT's existing customers will be able to take advantage of UPS' access to the markets around the world. Furthermore, UPS will capture the market share of TNT Express in Asia and Latin America as TNT was very active in these markets.

Current Growth

2011 was the golden year for UPS. The company achieved its all-time high earnings and cash flow. An excellent operating margin played a strong role in the company's $5 billion free cash flow. UPS saw strong volume and revenue growth, which resulted in $3.8 billion net earnings. This is impressive given that the company achieved all this in a slowing global economical environment. In 2011, 75% of UPS' revenue came from the U.S. This means the company has a lot of room to grow in the international markets.

Future Goals

The company's goal for the next few years is to achieve an annual EPS growth of 10%-15%, return on investment of 25%, and a free cash flow conversion rate of 100%. UPS also hopes to keep its operating margins high.

New Sources of Growth

The company launched multiple programs in the past year that will drive its growth in the coming years. One of the more promising programs is UPS My Choice. This program allows subscribers to have control over deliveries they receive from UPS for a small fee. The subscribers of this service receive delivery alerts on their mobile phone hours before a delivery is made, are able to electronically authorize packages for drop-off at a designated place, and are allowed to reroute or forward their packages to a new location. The program was able to attract 750,000 subscribers since its recent introduction to the market. So far this service is only offered in the U.S., and this will create another avenue of growth for UPS once the program is introduced to the new markets.

The company also started two new programs for individuals to be able to return items they ordered from online stores, called UPS Returns Exchange and UPS Returns Pack and Collect. This is an exciting opportunity for UPS as the company will be able to benefit from fast growth of the online retail industry. By offering solutions like these, UPS is giving consumers more power in that customers are more likely to send back items they are not satisfied with if the return process is made easier. This will increase customer retention for UPS.

UPS acquired Pieffe, an Italian healthcare distribution company, in 2011. Additionally, the company added 1.5 million square feet to its healthcare distribution centers, bringing the total number to 5 million square feet. UPS currently operates 33 distribution centers whose specialty is healthcare products, and the company plans to increase number of such distribution centers as they will help its growth significantly.

UPS spent $200 million in 2011 to improve its technological processes in order to increase efficiency. These efficiencies are helpful in increasing the company's operating margin. One example is the company's new GPS system Telematics. This system analyzes traffic patterns and leads drivers to areas where they're less likely to encounter traffic. This will decrease the amount of time drivers spend on the road as well as any chances of accidents.

Through investments, UPS added new planes to its fleet, making it possible to send small packages from Asia to Europe overnight. In addition, the company established UPS Capital financial services offices in Latin America, formed strategic partnerships with other companies, and increased its package sorting capacities in Europe. In the future, the company's operating margin should continue to be one of the highest among the blue chips.

Conclusion

Despite its already large size, UPS continues to grow at a rapid pace. The company is doing all the right things and is increasing its capacity to deliver high-quality service to clients all over the world. The company has a decent dividend rate of 2.84% and has been increasing its dividend rate since the company's IPO in 1999. The company's stockholders saw capital appreciation of 12% in the past year, and I believe that this very well-run company will continue to beat the market.

Disclosure: I am long UPS.

Source: You Gotta Believe In UPS