UPS cites weak U.S. economy after loss

By Nick Carey

CHICAGO (Reuters) - United Parcel Service Inc (UPS.N: Quote, Profile, Research, Stock Buzz) reported a 12 percent decline in quarterly profit on Wednesday, citing a sharp decrease in U.S. economic activity, and the No. 1 package delivery company cut its 2008 earnings forecast.

"U.S. economic activity deteriorated more rapidly than expected during the quarter," Chief Executive Scott Davis said in a statement, adding that "we will be extremely vigilant with respect to costs in this difficult environment."

Like its main rival, FedEx Corp (FDX.N: Quote, Profile, Research, Stock Buzz), UPS is considered a bellwether of U.S. economic activity. Last month FedEx reported a 7 percent decline in quarterly earnings.

"We see no signs of economic strengthening in the second quarter," said UPS Chief Financial Officer Kurt Kuehn.

Growth in U.S. export volumes, thanks to the weak dollar, were a bright spot in an otherwise gloomy picture.

The Atlanta, Georgia-based company reported first-quarter net income of $906 million, or 87 cents a share, compared with $1.03 billion, or 96 cents a share, a year earlier.

Analysts' average earnings forecast was for 86 cents per share, according to Reuters Estimates. UPS lowered its first-quarter earnings outlook earlier this month due to weakening U.S. economic activity.

Keith Schoonmaker, an analyst at Morningstar, said he had expected UPS' results to be affected by customers' "shifting to lower-priced deferred delivery products" and "pain from the fuel surcharge's lagging continued fuel price increases."