United Parcel Service Inc. (UPS) said Thursday that an economic recovery in the U.S. and Asia is expected by early 2010, though Europe may take longer to revive.

The world's largest package delivery company by revenue is viewed as a bellwether for global economic activity, and the broad slowdown saw it report a 56% drop in first-quarter earnings and offer disappointing guidance for the three months to June 30.

But despite what Chief Financial Officer Kurt Kuehn said is shaping up as a "challenging" second quarter, he and Chief Executive Scott Davis voiced optimism the U.S. economy "will hit bottom later this year" and then begin a recovery.

They said economies in Asia should recover on the same basic trajectory, although Europe likely will lag, partly because of slower enactment of government stimulus programs.

As for China, Kuehn noted that it remains a relative bright spot amid the global slowdown. UPS' Chinese export volume -- meaning Chinese businesses shipping goods out of the country -- was up 10% to 12% in the first quarter, about the same growth rate as in the fourth quarter.

"Clearly, [China] is not growing at the rate it was [prior to the global downturn], but reports of China's demise are greatly exaggerated," Kuehn said in an interview.

Still, UPS shares were off 2.5%, at $53.37, in recent trading after the company's first-quarter results fell short of Wall Street's consensus expectations and after Kuehn made clear that conditions may well get worse before they start to improve.

The company said average daily U.S. domestic shipping volume will be off 4% to 6% in the second quarter, compared to a 4.3% drop in the first quarter.

"The second quarter will be a bit more challenging than the first," Kuehn said on a post-earnings conference call with analysts.

UPS forecast second-quarter earnings of 45 cents to 55 cents a share. Analysts polled by Thomson Reuters projected 65 cents.

The company reported first-quarter net income of $401 million, or 40 cents a share, down from $906 million, or 87 cents a share, a year earlier.

The results included a writedown related to the retirement of 44 McDonnell-Douglas DC-8 aircraft. The company said it was retiring the entire DC-8 fleet earlier than expected because of overcapacity. Earlier this month, competitor FedEx Corp. (FDX) said it was grounding 14 aircraft for similar reasons.

Excluding items, UPS pegged its first-quarter profit at 52 cents a share, the low end of its February forecast and below Wall Street's target of 56 cents. Revenue fell 14% to $10.94 billion, compared to analysts' consensus expectation of $11.44 billion, according to Thomson Reuters.

Operating margin fell to 6.6% from 11.8%, while consolidated average daily volume -- which includes international shipments -- slid 3.9% and average revenue per package fell 6.9%.

The company said per-package revenue slipped in the quarter because customers opted to reduce package weights to save money, and because of reduced fuel surcharges.

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

(Kerry E. Grace contributed to this report)