UPS Inc., the world's largest shipping carrier, said Tuesday its profit fell nearly 21 percent in the second quarter despite a 6.7 percent increase in sales. The company also lowered its outlook for the year amid a slumping U.S. economy. UPS, hit by an average daily volume decline in the U.S. and soaring fuel costs, said its profit was $873 million, or 85 cents a share, in the second quarter, compared to a profit of $1.10 billion, or $1.04 a share, for the same period a year ago. Revenue grew to $13 billion from $12.2 billion. The earnings results for the most recent quarter met Wall Street expectations, which were reduced after the Atlanta-based company provided updated guidance on June 23. Analysts polled by Thomson Financial, on average, expected UPS earnings of 85 cents a share in the April-June quarter.

UPS is able to pass higher fuel costs on to customers as a fuel surcharge on shipments. However, the surcharge increases have not kept pace with rapidly rising fuel prices.

For the first half of the year, UPS earned $1.78 billion, or $1.72 a share, compared to a profit of $1.95 billion, or $1.82 a share, for the same period a year earlier. Six-month revenue rose 6.6 percent to $25.68 billion, compared to $24.1 billion recorded a year earlier.

Going forward, UPS said that, assuming business conditions do not worsen, it expects better results for the second half of the year, compared to the first half, but still lowered its full-year earnings per share guidance. The company expects earnings per share for 2008 to be within a range of $3.50 to $3.70. Previously, it expected earnings per share for the full year between $3.90 and $4.20 per share.

UPS is working out a contract to carry some air packages for DHL, the struggling U.S.-based express shipping unit of German postal service Deutsche Post AG. UPS, when it announced the proposed collaboration on May 28, predicted that the deal, when completed, will add up to $1 billion in annual revenue for the company.

The agreement is expected to last up to 10 years and covers express, deferred and certain international packages, but not freight. UPS also will transport DHL air packages between the U.S., Canada and Mexico.

The deal could be a significant blow to DHL's current vendors for the air shipments UPS is seeking to take over. Thousands of jobs could be lost in Ohio, where some officials are trying to scuttle the deal.

Written By HARRY R. WEBER

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