Updated from 7:57 a.m. EST

UPS ( UPS) said fourth-quarter earnings rose, but it called for slower domestic growth in 2007, particularly in its premium overnight delivery segment.

The Atlanta-based package deliverer made $1.13 billion, or $1.04 a share, for the quarter ended Dec. 31, up from the year-ago $1.05 billion, or 95 cents a share. Revenue rose 5.6% from last year to $12.62 billion.

Analysts surveyed by Thomson Financial were looking for a $1.04-a-share profit on sales of $12.87 billion.

While international growth remains strong, the U.S. economy is slowing, meaning that "2007 will be a challenging year for the domestic operation," CFO Scott Davis said on a conference call.

"The premium products are not growing the first half of the year, putting pressure on domestic results ," Davis said. "Our best margin products are the next-day air products, and when you don't have much growth in those products, it puts more pressure on the margins than it would from the ground side."

UPS shares were trading down 3.1% at $71.34.

The company called for 6% to 10% earnings-per-share growth this year, below its historic rate of 13% to 14%, putting profits at $4.10 to $4.25 a share. Last year, UPS earned $3.86.

For the first quarter, UPS projected earnings of 94 cents to 98 cents a share. Analysts were looking for 98 cents for the quarter and $4.27 for the year.

Davis said the company's outlook is based largely on consensus projections that the economy will grow by 2% to 3% in the first two or three quarters.

"We're not a leading indicator," he said. The company's growth will slow because industrial production will cool down, he said, even though UPS growth and U.S. small-package growth have historically outperformed the economy.

UPS will also suffer from tough first-quarter comparisons, he noted. In the first quarter of 2006, net income rose 10.5% and revenue climbed 16.5%.

The company ended the quarter with nearly $2 billion in cash and marketable securities. Davis said the company's "first choice is to reinvest," particularly in international package-delivery opportunities, but that an evaluation of increased dividends or share repurchase is "clearly something on the front burner for us."

During the quarter, operating profits in the international package division rose 19% to $514 million. Revenue rose 9.9% to $2.44 billion. Operating margin was 21%, up from 19.4%.

But in the U.S. package unit, operating margin was flat at 15.9%. The division produced revenue of $8.13 billion and an operating profit of $1.3 billion, up from $1.24 billion last year.

The supply chain and freight division lost $1 million, compared with a profit of $43 million a year earlier, as demand softened for less-than-truckload freight. Revenue rose 7.9% to $2.06 billion.