UPDATE 1-UPS profit falls on high labor costs, weak small-package demand

(Updates with details from release, background throughout)

April 23 (Reuters) - United Parcel Service reported a decline in first-quarter profit on Tuesday, as margins came under pressure from subdued demand for small-package delivery and higher costs tied to a new labor contract with the Teamsters union.

Delivery companies such as UPS and FedEx have seen demand normalize following a boom during the pandemic, when home-bound consumers were forced to shop online.

UPS reported a 3.2% decline in average daily volumes in its domestic segment and a 5.8% drop in its international segment.

A new labor contract with the Teamsters union is also squeezing the Atlanta-based company's profit.

UPS is absorbing 46% of the wage and benefit costs of the new five-year contract in 2024, and has said it does not expect business conditions to improve until the second half of the year.

The company reported an adjusted operating margin of 8%. In January, UPS said it expects its first-quarter profit margin to be the lowest in 2024.

The world's biggest package delivery firm by market capitalization posted an adjusted profit of $1.43 per share for the quarter, compared with $2.20 per share a year ago.

(Reporting by Ananta Agarwal in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Devika Syamnath)