TNT's Q1 profit falls 14 percent on express woes

AP News
Posted: May 02, 2011 6:52 AM
TNT's Q1 profit falls 14 percent on express woes

TNT NV, the Dutch mail and global express company, has reported a 14 percent fall in first quarter profits due to high fuel costs and problems at both its major divisions.

Net profit was euro123 million ($182 million), compared with euro143 million in the same period a year earlier.

However, revenues rose 4.3 percent to euro1.11 billion on the back of growth at its loss-making international mail delivery arm, which competes in Germany and more recently in Italy. The overall increase masked continued declines at the core Dutch mail arm, which witnessed another 8.6 percent fall during the first three months.

Because the domestic business is suffering under competition from the likes of Deutsche Post, TNT is to cut around 11,000 jobs, or a third of its mail service employees. It's also going to ask shareholders later this month to approve a spin-off of its express arm, which is expected to grow eventually.

TNT said Monday that mail operating profits on an "underlying" basis _ a nonstandard measure that strips out one-off charges and currency effects _ fell by 33 percent to euro120 million due to falling addressed mail volumes in the Netherlands and higher pension costs.

Express operating profits fell by 31 percent to euro49 million as higher fuel costs and widespread competition hit the business, despite the modest economic recovery in most areas. The underlying figure differs sharply from the actual operating figure at express: the arm reported an actual euro79 million euro loss, due to a euro120 million non-cash impairment charge on the value of its Brazilian operations.

The company said corporate customers who are the source of most express mail profits are slowly returning, but profits are still suffering from natural disasters, high oil prices and operational problems in Brazil.

Shares dropped 5.9 percent to euro15.65 in early Amsterdam trading

Though analyst Victor Bareno of SNS Securities said the results were not surprising, given the company had issued a profit warning in April, he said the accompanying text "is not an easy read for management."

He pointed to company remarks that TNT's European infrastructure remains underutilized; in Asia business started the year weak and has remained flat outside of China; and the Brazil operations may not be turned around before the second half of 2012.

Bareno kept a "hold" recommendation on the stock, as the express division is seen as a likely takeover target for UPS or FedEx _ assuming shareholders approve the spinoff as expected at TNT's annual shareholders' meeting on May 25.