April 22 (Bloomberg) -- United Parcel Service Inc., the world’s largest package-delivery company, may say first-quarter revenue fell for just the second time in 10 years as businesses curbed shipping to thin out inventories.

Sales probably dropped 8.7 percent to $11.6 billion, based on the average estimate of 13 analysts surveyed by Bloomberg before UPS reports earnings tomorrow. Profit likely tumbled 38 percent to $570 million, or 57 cents a share.

The results may give investors a clue about U.S. economic health, because the rise or fall in UPS’s domestic volume typically mirrors changes in gross domestic product. Atlanta- based UPS said in February that first-quarter volume would fall 3 percent to 5 percent as the recession deepened.

“UPS will say that the first quarter was horrible like we all thought, but that things are starting to stabilize,” said Art Hatfield, a Morgan Keegan & Co. analyst in Memphis, Tennessee. “There’s just not much they can say because they don’t know for sure.”

UPS’s February earnings forecast put profit at 52 cents to 68 cents a share, trailing the 69-cent average estimate in a Bloomberg survey at the time. Norman Black, a UPS spokesman, declined to comment yesterday ahead of the company’s release.

“Things are stabilizing at very weak levels,” said Jon Langenfeld, an analyst at Robert W. Baird & Co. in Milwaukee. “We’re not going to hear signs of life or things picking up.”

An end to worsening volume declines may be enough for investors. The shares have gained 43 percent since a 9-year low on March 9, outpacing the 25 percent advance for the Standard & Poor’s 500 Index. UPS fell 60 cents, or 1.1 percent, to $54.75 at 4:01 p.m. in New York Stock Exchange composite trading. Langenfeld rates UPS as neutral, while Hatfield advises buying.

Sales-Gain Streak

Until the fourth quarter of last year, UPS had never posted a drop in sales since it first sold shares to the public in 1999. The U.S. economy contracted 6.3 percent in that quarter, the fastest since 1982, while UPS’s U.S. shipping volume plunged the most in nine years.

The 102-year-old company has about 56 percent of the U.S. package-delivery market, followed by FedEx Corp.’s 30 percent and the U.S. Postal Service’s 13 percent, according to SJ Consulting Group Inc. in Sewickley, Pennsylvania.

First-quarter shipments probably fell for all of UPS’s most important categories, including a decline of 4.1 percent for express deliveries, Langenfeld estimated. Ground packages likely tumbled 4 percent and international export slid 3 percent, Langenfeld said.

Revenue also was pinched because some customers chose lower-priced options such as two- or three-day service, which aren’t as profitable for UPS, Langenfeld wrote in an April 13 note to clients.

Finding a Bottom

While UPS hasn’t given a full-year outlook, economists surveyed by Bloomberg estimate that U.S. GDP will shrink by 2.5 percent for all of 2009, less than a projected 5 percent decline in the first quarter. Langenfeld said shipping volumes “appear to be bottoming” and probably won’t worsen this year.

Orders placed with U.S. factories rose in February for the first time in seven months, suggesting that the buildup of business inventories may be abating.

Lower fuel costs are helping both UPS and FedEx, the world’s biggest cargo airline. Crude oil’s 68 percent drop from a record $147 a barrel in July allowed UPS and Memphis-based FedEx to eliminate fuel surcharges for air packages after the fee reached a record 35 percent last year, prompting some customers to switch to cheaper ground shipping.

Slashing Expenses

Like FedEx, UPS also is shaving expenses, saying in February it wanted to chop at least $500 million from 2009 nonoperating costs. UPS suspended matching contributions to employees’ 401(k) retirement accounts and froze the salaries of 30,000 managers, or about 7 percent of the workforce.

Unlike FedEx, which cut 1,000 jobs in early April as part of a plan to save $1 billion, UPS hasn’t resorted to companywide dismissals to trim the 426,000-person payroll in 2009.

UPS said last week it ended talks to handle U.S. air shipments for DHL after the Deutsche Post AG unit shut down most operations in the country.

DHL said in November it would close three-fourths of its U.S. outlets, causing a 90 percent drop in volume. After reaching a tentative accord in May, UPS said it might reap $1 billion more in annual revenue by ferrying DHL packages between U.S. airports.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

Last Updated: April 22, 2009 16:10 EDT