FedEx Corp. on Tuesday said a sharp decline in manufacturing activity would harm its profits, a sign of how declining Chinese output is ricocheting across economies around the world.

The world's largest air-cargo shipper by revenue said earnings in the August-ended quarter came in below its already reduced expectations. FedEx shares fell 3.1% to $84.85 in after-hours trading, with rival United Parcel Service Inc. down 1.9% at $72.31.

"It looks bad," said David Vernon, an analyst at Sanford C. Bernstein & Co. He said the global economy has decelerated faster than even FedEx anticipated.

FedEx is viewed as an economic bellwether, transporting everything from financial documents to pharmaceuticals to auto parts. Like UPS, FedEx has been hit by an overall slowdown in shipments and tougher competition from ocean freight as customers seek cheaper transport options.

Both FedEx and UPS have cut capacity out of Asia. The International Air Transport Association last week said members saw no signs of improvement in the global air freight market.

Global air freight volume fell 3.2% in July from a year earlier, and was up just 0.1% from the prior month in what the industry trade group said was a sign that the minor recovery in cargo seen earlier in the year had "stagnated."

This was highlighted by Chinese and European manufacturing data released Monday. Chinese manufacturing activity in August slowed at its sharpest pace since March 2009. The HSBC China manufacturing PMI dropped to 47.6 from 49.3 in July, reflecting a severe slowdown in the world's second-largest economy.

UPS in July undershot earnings' expectations and cut its own full-year profit forecast, saying customer confidence has been rattled by the European debt crisis and the U.S. "fiscal cliff" looming early next year.

FedEx said a weak global economy constrained growth at its Express business-the company's largest division and the one that handles international parcels-more than it had anticipated.

It hasn't yet closed the books for the latest period, and will give additional information when it reports its quarterly results on Sept. 18. The company declined further comment.

FedEx now expects per-share earnings of $1.37 to $1.43 in its fiscal first quarter, which ended Aug. 31, compared with its June forecast of $1.45 to $1.60. In the same period last year, FedEx reported earnings of $1.46 a share.

In June, FedEx reported a decline in fiscal fourth-quarter profit and a slump in full-year cargo-volume growth for the first time in more than two years.

The Memphis, Tenn.-based company is also in the midst of a restructuring of its domestic express business. The company is expected to detail the domestic revamp in October, and last month said it would offer voluntary buyouts to an unspecified number of staff as part of the plan.

BB&T Capital Markets analyst Kevin Sterling said the FedEx warning is in keeping with recent data pointing up the summer weakness in the airfreight sector.

"Air cargo volumes have really just bounced along the bottom, at best," Mr. Sterling said. He held out some optimism that FedEx could see a pickup soon, with peak autumn shipping season set to begin and with the anticipated launch of new products from Apple Inc. and others.

The prospect of a strike by dockworkers on the U.S. East and Gulf coasts starting on Oct. 1 following a breakdown in contract talks has also lifted the air freight sector in recent sessions.