April 28 (Reuters) - United Parcel Service on Tuesday reiterated its full-year revenue target despite projecting a return to growth in the June quarter, as soaring fuel prices from the U.S. and Israeli war in Iran put an underlying improvement in its business at risk.

The world's largest parcel delivery firm forecast 2026 revenue of $89.7 billion, up 1.2%. Shares in UPS - viewed as an economic bellwether because its customers include retailers, factories and prescription drug makers - fell 5.2% in early trading. Shares in rival FedEx pared 1%.

"It is early in the year and there is a war in the Middle East. High gasoline prices could potentially impact demand towards the end of the year," CEO Carol Tome said on an earnings call.

UPS adds a fuel surcharge on packages that move on vehicles and planes, a move that protects its profits from price spikes.

Those surcharges will boost revenues, but costs are also higher, CFO Brian Dykes said.

"We don't see this as a windfall," Dykes said.

U.S. logistics firms including UPS and FedEx have seen volume decline due to changing U.S. trade policies, notably tariffs on goods from China and other key exporting countries as well as the loss of duty-free "de minimis" treatment for low-value e-commerce shipments tied to China-linked discount sellers such as Shein and Temu. UPS separately decided to deliver millions fewer packages for Amazon.com, its largest customer, as it weeds out work that weakens profits.

UPS CEO Tome said the company would return to revenue and profit growth from the second quarter due to its transition to premium, higher-paying shipments and cost cuts it undertook in recent quarters.

Over the last year, UPS has cut thousands of jobs as it ramps up automation at sorting hubs in a bid to bring down operating costs.

Atlanta-based UPS on Tuesday reported adjusted net income of $1.07 per share for the quarter ended March 31, compared with $1.49 per share a year earlier, but beat analysts' expectation of $1.02, according to data compiled by LSEG.

Quarterly revenue fell 1.6% to $21.2 billion. However, revenue per piece at its core domestic segment rose 6.5%.

Some analysts said first-quarter margins in the company's domestic segment, its top revenue driver, missed expectations. Jefferies said the segment's adjusted operating margin of 4% was at the lower end of its 4% to 5% expectation.

(Reporting by Nandan Mandayam in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Anil D'Silva and Nick Zieminski)

By Nandan Mandayam