United Parcel Service Inc.'s (UPS) fourth-quarter profit slumped below expectations amid a decline in freight volumes, as the shipping company said it was freezing management salaries and suspending its 401(k) matching contributions to cut costs.

"Conditions continue to worsen," Chief Executive Scott Davis told analysts on a post-earnings conference call, adding that "nobody is escaping pain this financial crisis."

UPS, the top package-delivery company, said fourth-quarter volume dropped 3.7%, and it forecast first-quarter volume down 3% to 5%. The company declined to forecast full-year volume but said the figure likely will be down from 2008.

"Barring a substantial recovery in the second half of the year, we will be challenged to show volume growth," Chief Financial Officer Kurt Kuehn said in an interview.

Still, UPS shares climbed 4.9%, or $2.08, to $44.50. The shares have slipped about 15% since Dec. 1, with some analysts noting Tuesday that fourth-quarter volumes, while down, were above expectations.

As a diversified transportation company that moves everything from documents to building materials, UPS, along with FedEx Corp. (FDX), is considered a barometer for the state of the U.S. economy. Combined, the two companies move an average of 22 million packages a day.

UPS swung to a fourth-quarter net income of $254 million, or 25 cents a share, from a year-earlier loss of $2.64 billion, or $2.52 a share. The latest results included a $575 million write-down related to the UPS Freight business, while last year's included a $6.1 billion pension-related charge. Excluding items, earnings fell to 83 cents from $1.07 a share a year earlier.

Revenue decreased 5.2% to $12.7 billion.

Analysts surveyed by Thomson Reuters expected earnings of 85 cents a share on revenue of $13.2 billion.

The company said it has engaged in a number of moves to reduce costs, consolidating its operating districts, reducing air segments and eliminating some package-handling operations. It also said 2009 capital expenditures will total about $2.2 billion, $400 million below 2008 levels and the lowest this decade.

Still, UPS hasn't laid off employees amid the current downturn, with CFO Kuehn saying Tuesday that the company so far has been able to manage by keeping vacancies open and by reducing work hours.

He also said the company will be on the lookout for acquisitions amid the downturn.

"We think there will be opportunities for UPS to buy assets and/or companies" at bargain prices, Kuehn said.

But UPS made clear that it doesn't see a quick end to the ongoing economic pain, forecasting first-quarter earnings of 52 cents to 68 cents and declining to issue a full-year projection because of ongoing uncertainty. Wall Street currently expects UPS to earn 65 cents a share in the first quarter.

Revenue from the company's U.S. package unit declined 3.9% in the fourth quarter and average volume slid 3.2%, although the unit swung to an operating profit of $932 million. U.S. next-day air volume fell 10%.

In the international packages division, fourth-quarter revenue fell 8% as average daily volume was up 4.8%, though profits fell 6.9%.

The company noted that total export volume increased 1.6% in the quarter, better than the industry average but below the third-quarter growth rate of about 7%.

"We did see substantial slowing from the third quarter to the fourth quarter" internationally, Kuehn said.

He said growth remains relatively strong in China at a low double-digit rate, although he said the trend has been offset by some weakness elsewhere in Asia.

In December, UPS's investment ratings were cut by several firms. J.P. Morgan said UPS had relatively outperformed other transporters since the beginning of November, but it no longer expects that outperformance to continue.

-By Bob Sechler, Dow Jones Newswires; 512-394-0285; bob.sechler@dowjones.com

(Kerry E. Grace contributed to this report)

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