FedEx Corp., the world's largest cargo airline, reported Thursday that first-quarter profits fell 36 percent, in part because the flat economy weakened demand in the manufacturing and high-tech sectors for its premium services.

Company officials said they're unsure how the disruption of air deliveries in the wake of last week's terrorist attacks and the economy's response to the strikes on the World Trade Center and the Pentagon will affect the company's next quarter.

Along with the rest of the nation's airlines, FedEx planes were grounded for two days and international deliveries were restricted until Saturday.

``Our volumes at FedEx Express were substantially reduced last week while our aircraft were grounded, and our volumes have not yet recovered to levels existing prior to the tragedy,'' said Alan B. Graf Jr., FedEx chief financial officer and executive vice president.

The Memphis-based package delivery company reported net earnings of $109 million, or 36 cents per share for the fiscal quarter that ended Aug. 31. That compares with profits a year ago of $169 million, or 58 cents per share.

The results exceed analysts' expectations of 31 cents per share, according to a survey by Thomson Financial/First Call.

The first-quarter profits included a non-cash charge of 5 cents per share related to the adoption of new accounting standards.

FedEx reported revenue of $5.04 billion, up 5 percent from $4.78 billion during the first quarter of 2000. The increase was in part due to the acquisition of American Freightways during the last fiscal year, Graf said.

Company officials said first-quarter volume in the company's U.S. operations declined 7 percent and volume in international business was down 1 percent.

FedEx plans to continue cutting costs by limiting hiring and reducing discretionary spending at all operations. The company expects to continue revenue growth with the contract to transport U.S. mail, which began Aug. 27, and the expansion later this month of its home delivery network, as well as an online discount program for small business customers.