UPS on Thursday insisted its weak performance in the last three months of 2004 was an isolated blip and forecast "solid" growth this year, driven by surging international business, particularly in China.

However, guidance for first quarter earnings was at the lower end of analysts' expectations, deepening concern that the world's largest package delivery company could be losing ground to rivals FedEx and DHL.

UPS pledged to reduce annual costs by $200m and launch an initiative to win more business from mid-sized US firms in response to its disappointing end to last year.

The company warned two weeks ago that its fourth quarter earnings would fall below expectations because of reduced growth in domestic ground deliveries.

Scott Davis, chief financial officer, on Thursday blamed the slowdown on poor planning and bad weather, dismissing the notion that FedEx and DHL were stealing significant market share.

"Although it was a challenging quarter it was just that: one quarter," he said.

Mr Davis said UPS was interested in making further acquisitions in the logistics and freight-forwarding sectors as it seeks to diversify into a broader range of supply chain services.

The comments fuelled market rumours that UPS is considering a bid for Exel, the UK-based logistics group.

Mr Davis said that despite the domestic slowdown the fourth quarter had been the most profitable in the company's history, with net earnings up 1.2 per cent at $866m, or 76 cents a share. Revenues rose 10.2 per cent to $9.8bn.

Over the full-year, net profits increased 15 per cent to $3.3bn, while revenue climbed 9.2 per cent to $36.6bn.

International package revenue grew almost 23 per cent in the fourth quarter, with export volume out of China more than doubling.

Mr Davis expected the international business's "exceptional" performance to continue this year, helping earnings per share grow by an expected 13-17 per cent from the $2.90 achieved in 2004.

First quarter earnings per share were projected to be 70-75 cents, compared to the average 75 cents expected by analysts polled by Thomson First Call.

"In 2004, we grew our ground business, we grew our air business, we grew our international business and we delivered more packages than ever before," said Mr Davis.

"We're optimistic about 2005 and confident in our ability to continue producing consistent earnings growth."

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