Updated from 8:55 a.m. EDT

UPS ( UPS) beat analysts' earnings estimates for the latest quarter Thursday, but net income fell nearly 10% year over year as package volume declined in the U.S.

The parcel carrier said domestic shipping slowed sharply last month, and it predicted a slow Christmas season. However, it said its international and supply-chain businesses remain strong.

"In September, we saw precipitous declines in domestic shipping , most notably in next-day products," said CFO Kurt Kuehn, on an earnings conference call. The decline continued this month, with domestic volume down 4%.

The current quarter depends heavily on the holidays at the end of the year. "With consumer confidence approaching new lows, we expect Santa's sleigh may be a bit lighter this year," Kuehn said.

The company said 2008 earnings per share should be toward the lower end of the $3.50-to-$3.70 range it provided earlier. The guidance is based on fuel prices in the mid-$80s per barrel, said CEO Scott Davis.

Looking ahead, Davis said he feels "pretty good" about the company's prospects for next year. While the first quarter will present difficult comparisons, successive quarters will be easier, he said, and should benefit from lower energy prices and easier credit markets.

In the third quarter, UPS reported net income of $970 million, or 96 cents a share, down from $1.08 billion and $1.02 a share a year earlier. Analysts surveyed by Thomson Reuters had estimated 89 cents. Revenue rose 7.4% to $13.1 billion and slightly exceeded the consensus target.

The company said its international and supply-chain businesses were strong. Operating profit declined by 9% in the U.S. domestic package division and by 9.8% in international, but increased by 31.6% in supply chain and freight. All major regions of the world posted volume increases in the mid- to high-single digits, although U.S. imports continued to decline, the company said.

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