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UPS Cuts Profit Outlook, Pushing Shares Lower

United Parcel Service saw its shares fall sharply after the world's largest shipping carrier cut profit guidance, indicating more troubles for the US economy.

A hydraulic hybrid UPS delivery truck is seen with the Philadelphia skyline in the background during a demonstration in Philadelphia, on Friday, June 23, 2006. The UPS truck uses an Environmental Protection Agency patented hydraulic hybrid technology that the EPA claims will increase fuel efficiency by 60 to 70 percent. Full hydraulic hybrid technology means that the conventional transmission and transfer case have been removed and replaced with a hydraulic drivetrain. (AP Photo/Matt Rourke)
Matt Rourke
A hydraulic hybrid UPS delivery truck is seen with the Philadelphia skyline in the background during a demonstration in Philadelphia, on Friday, June 23, 2006. The UPS truck uses an Environmental Protection Agency patented hydraulic hybrid technology that the EPA claims will increase fuel efficiency by 60 to 70 percent. Full hydraulic hybrid technology means that the conventional transmission and transfer case have been removed and replaced with a hydraulic drivetrain. (AP Photo/Matt Rourke)

The company, which carries products that amount to about 5 percent of gross domestic product each year, said lower volume and higher fuel costs would eat into profits. Because the company is at the center of transporting goods that drive US productivity, its fortunes are generally seen as reflective of broader economic activity.

The company said it now expects earnings per share of 86 cents or 87 cents. Previously, the company said it expected first quarter profit between 94 cents and 98 cents per share.

Analysts polled by Thomson Financial were expecting earnings of 93 cents per share.

"The U.S. economy has continued to weaken, causing a reduction in domestic package volume and a shift away from premium products," UPS said. "Significantly increased fuel costs in the quarter also contributed to the lower-than-expected results."

The company said lower volume trends from February continued through March, making it impossible to meet its prior guidance.

Atlanta-based UPS said a shift away from premium products also contributed to the guidance cut.

UPS has said the first three weeks of January saw strong volume growth, but that was later followed by six weeks of contraction. It suggested Tuesday that the negative trends continued into March.

UPS plans to release its first-quarter results April 23. It will discuss its outlook for the year then.

At the investor conference, Chief Executive Scott Davis said the company still considers its domestic market to be important to its future. But he said that the company can't rely on U.S. package volume growth alone. International growth will become more important in the future, he said.

UPS is eyeing China, India and Europe for growth opportunities.

Last month, UPS rival FedEx reported a 6 percent drop in third-quarter earnings and said a slow economy and high fuel prices are expected to continue cutting into profits. The Memphis-based shipper predicted fourth-quarter earnings would be lower than a year ago and its earnings growth would be limited in the next fiscal year.