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UPS (NYS: UPS) is the worldwide leader of the express delivery business. Its strategic position, excellent service reputation, and financial prowess deliver attractive results. But questions loom regarding UPS' ability to successfully integrate a pending acquisition. To keep on packaging great results for shareholders, Big Brown will need to polish five key strengths.

Industry background
The U.S. delivery industry is divided into ground parcel and air express, with the ground market twice the size of air. UPS and FedEx (NYS: FDX) are the cream of the crop, but UPS reigns supreme as the overall leader with 60% market share, followed by FedEx and the U.S. Postal Service.

With nearly 9 million customers and 4 billion deliveries made last year, UPS provides service to practically all U.S. businesses and households. Each year, the company delivers goods worth a mind-numbing $500 billion -- a figure that roughly equals the GDP of Sweden or Saudi Arabia, or the market cap of Apple.

Fundamental strengths
UPS is well-positioned versus its rivals for these reasons:

  • Interconnected network -- UPS' sheer size and its well-woven network of air and ground services allow it to offer competitive pricing. The Davids of the industry find it difficult to compete because of expensive investment requirements. This has protected the grinning Goliaths of the industry such as UPS.

  • E-commerce growth -- UPS invests heavily to take advantage of the explosive growth in e-commerce. Revenue for Amazon.com (NAS: AMZN) has more than quadrupled over the past five years. Office supply behemoth and No. 2 e-retailer Staples (NAS: SPLS) invests heavily in its e-commerce platform. As online retailers grow, so do opportunities for package delivery.

  • Strategic acquisition -- UPS will acquire TNT Express, a Dutch-based delivery business, for $6.8 billion, $3 billion from cash and the rest in debt (read: at rock-bottom, low interest rates). The deal will consolidate the European delivery market and offer cost-saving opportunities. As an added bonus, UPS will benefit from TNT's healthy trucking network in China.

  • International growth -- International packages generate twice the revenue as domestic ones. UPS sees this as a huge revenue opportunity, and as a result, its international business is growing faster than its U.S. business. UPS expects to receive 36% of its revenue from international business after the TNT purchase, up from 26% currently.

  • Healthy financials -- UPS' AA-debt rating from Standard & Poor's is virtuous in this industry. With $3 billion of cash on hand and $5 billion of annual cash flow, UPS has the monetary muscle to make acquisitions, repurchase shares, and maintain its solid dividend. The company also has 15 Boeing (NYS: BA) aircraft on order and took delivery of an additional seven last year.

UPS loves logistics and shareholders will, too
UPS expanded its business beyond package delivery by cross-selling logistics services to customers. Part of UPS' supply chain and freight division helps companies streamline their distribution networks so those companies can focus on pumping out the computer hardware, shoes, or trucks that comprise their core businesses. This entire division raked in more than $9 billion in sales and more than $600 million in record-setting operating profit for Big Brown last year.

Bumpy road
Air express delivery is more expensive than ground, so customers are likely to switch to the cheaper ground services during economic slowdowns. Look for this to hinder revenue growth for UPS if the economic recovery stalls out.

The TNT acquisition could also prove precarious for UPS. Integration will take several years, and regulatory approval may be challenging. After the acquisition, UPS will hold nearly 18% of the European express-parcel market. European regulators have not been friendly to large acquisitions that result in an American company taking a dominant market position.

The long haul for Big Brown
Expect healthy growth for UPS and the delivery industry as the economy recovers. UPS may be jarred from potholes on the road ahead, but I feel confident that the ride over the long haul will smooth out.

One of the main reasons I like UPS for the long haul is the company's new exposure to Asia and Latin America after the acquisition of TNT Express. But UPS is certainly not the only American company looking abroad for growth. There are three companies whose international growth stories we're particularly bullish on. If the trend continues, investors could be looking at internationally fueled new stock highs. Uncover them in our special free report: "3 American Companies Set to Dominate the World." The report won't be available forever, so we invite you to enjoy a free copy today. You can access it by clicking here. Enjoy, and Fool on!

At the time thisarticle was published Fool contributorNicole Seghettiloves being on the receiving end of a UPS delivery. She owns shares of UPS and FedEx. The Motley Fool owns shares of Staples and Amazon.com.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com, Staples, and FedEx. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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