United Parcel Service Inc.'s (UPS) second-quarter income fell 49% on continued weak demand, with the shipping bellwether warning that conditions have yet to improve substantially and forecasting disappointing third-quarter results.

The most optimistic view that UPS executives offered is that business trends appear to be stabilizing.

Chief Financial Officer Kurt Kuehn said the broad economy isn't getting "dramatically worse," but he noted that UPS remains "cautious" on its outlook because few signs of an imminent rebound are evident.

"We don't see any convincing signs of firming," Kuehn said in an interview. But "it appears that things are flattening out."

UPS shares were trading recently at $53.32, up about 2%.

The company projected third-quarter earnings of 45 cents to 55 cents per share, below Wall Street's consensus forecast of 59 cents per share, according to Thomson Reuters.

UPS said it expects average daily domestic package volumes to be down about 4.6% in the third quarter, equal to the second quarter slide. Average daily international export volumes likely will be down 4% to 6%, after falling 7.3% in the second quarter, the company said.

The earnings warning is the latest for UPS, which like virtually every industry linked to freight has seen steep declines in volume.

Earlier Thursday, German shipping company Deutsche Post AG (DPW.XE) reported that its volumes "may have seen the bottom," but it also said it doesn't expect world trade to make a substantial recovery in coming months. FedEx Corp. (FDX) warned last week it was bracing for soft demand into next year.

Kuehn said the two biggest indicators for UPS's business - retail sales trends and industrial production - continue to face big headwinds and "both are remaining quite negative."

He also noted that UPS has yet to see traditional early signs of a seasonal shipping uptick ahead of the back-to-school shopping season.

"So far, there has not been much of a pickup in any of the freight modes" attributable to the back-to-school season, Kuehn said.

UPS remains "hopeful" that the seasonal uptick will materialize, he said, although he acknowledged early indicators aren't encouraging.

As a diversified transportation company that moves everything from documents to building materials, UPS, along with rival FedEx, is considered a barometer for the state of the U.S. economy.

UPS posted second-quarter income of $445 million, or 44 cents a share, down from $873 million, or 85 cents a share, a year earlier. The latest quarter included 5 cents in currency and other charges. In April, the company projected earnings of 45 cents to 55 cents per share, below analysts' estimates at the time.

Revenue decreased 17% to $10.83 billion. Analysts most recently expected $11.02 billion.

Operating margin fell to 8.3% from 11.2%, while average revenue per package fell 11%.

U.S. package revenue fell 12% as the unit's profits slid 47%. In the international packages division, revenue dropped 24% and profits declined 29%.

The shipping giant has moved to cut costs amid the downturn, with capital spending through the first six months of the year equaling about 3% of revenue, the lowest rate since UPS went public in 1999.

Kuehn said UPS normally spends about 5% to 7% of revenue on capital projects, although he stressed that it has retained enough firepower in its current budget for potential acquisitions and other strategic investments.

The company has reduced its workforce by about 15,000 employees, or 3.5%, over the past year. Kuehn said the bulk of the reductions have come through attrition, although there have been some layoffs as well.

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

(Kerry Grace Benn contributed to this report)