TNT Q2 profits fall 16%
TNT NV, Europe's No 2 express-delivery company, said second-quarter profit fell 16 per cent as slowing economies and high fuel prices prompted customers to switch to cheaper delivery options and the strong euro hurt earnings.
Net income declined to 205 million euros (S$439 million), or 55.9 euro cents a share, from 244 million euros, or 63 cents, a year earlier, TNT said yesterday. Profit missed the 224 million-euro median estimate of seven analysts surveyed by Bloomberg. Sales rose 4.5 per cent to 2.81 billion euros.
TNT, based in Hoofddorp, Netherlands, witnessed slowing growth in deliveries of express packages by air as customers moved to cheaper road-based options, echoing trends at competitors such as Atlanta-based United Parcel Service Inc. The strength of the euro against other currencies, especially the pound, hurt profit by seven million euros. TNT said 2008 earnings will be at the 'low end' of its outlook.
'The direction is negative,' said Axel Funhoff, an analyst at ING in Brussels with a 'buy' recommendation on the stock, in a note to clients yesterday. There may be 'further pressure on the outlook and hence overall expectations'.
The Dutch company's stock rose 30 per cent in the previous two weeks on media reports that FedEx Corp, the second-largest US package-shipping company, might buy the company. FedEx was in preliminary talks to buy TNT, the Financial Times said on July 12. The two companies had 'low-level' talks about a takeover recently, though the discussions didn't lead the US company to make an offer, the Wall Street Journal reported last week. TNT and FedEx declined to comment on the reports. Chief executive officer Peter Bakker declined during a news conference yesterday to comment on the reports. He added that the Dutch company would review any 'serious' takeover proposal.
TNT reiterated a forecast that the express division's Dutch and international operations will generate 'high single-digit' sales growth this year, excluding acquisitions, and that earnings before interest and taxes as a proportion of sales will be in the low double-digit percentage range. Mail-unit revenue will rise by a low single-digit percentage, also excluding takeovers, producing an operating margin of about 16.5 per cent, TNT said, repeating earlier targets.
'The sharp rise in fuel prices during the quarter and the general economic outlook have impacted both our customers and us,' Mr Bakker said in the statement.
The remainder of the year will see more customers switching to cheaper road-based deliveries from air shipments amid high fuel costs, the CEO told reporters. The company plans to cut costs at the express unit by 100 million euros to 125 million euros, with the effects expected to be fully realised in 2010, he said.
TNT has a strategy of passing on higher fuel costs to customers through fuel surcharges, causing rising prices for express shipments. Jet-fuel prices in northwest Europe have risen 43 per cent this year, Bloomberg data show.
The company aims to transport as much as possible by road rather than air, helping to hold back costs as prices for diesel fuel rise more slowly than for jet kerosene, Jan Willem Breen, head of marketing and sales at the express unit, said last month.
Net income declined to 205 million euros (S$439 million), or 55.9 euro cents a share, from 244 million euros, or 63 cents, a year earlier, TNT said yesterday. Profit missed the 224 million-euro median estimate of seven analysts surveyed by Bloomberg. Sales rose 4.5 per cent to 2.81 billion euros.
TNT, based in Hoofddorp, Netherlands, witnessed slowing growth in deliveries of express packages by air as customers moved to cheaper road-based options, echoing trends at competitors such as Atlanta-based United Parcel Service Inc. The strength of the euro against other currencies, especially the pound, hurt profit by seven million euros. TNT said 2008 earnings will be at the 'low end' of its outlook.
'The direction is negative,' said Axel Funhoff, an analyst at ING in Brussels with a 'buy' recommendation on the stock, in a note to clients yesterday. There may be 'further pressure on the outlook and hence overall expectations'.
The Dutch company's stock rose 30 per cent in the previous two weeks on media reports that FedEx Corp, the second-largest US package-shipping company, might buy the company. FedEx was in preliminary talks to buy TNT, the Financial Times said on July 12. The two companies had 'low-level' talks about a takeover recently, though the discussions didn't lead the US company to make an offer, the Wall Street Journal reported last week. TNT and FedEx declined to comment on the reports. Chief executive officer Peter Bakker declined during a news conference yesterday to comment on the reports. He added that the Dutch company would review any 'serious' takeover proposal.
TNT reiterated a forecast that the express division's Dutch and international operations will generate 'high single-digit' sales growth this year, excluding acquisitions, and that earnings before interest and taxes as a proportion of sales will be in the low double-digit percentage range. Mail-unit revenue will rise by a low single-digit percentage, also excluding takeovers, producing an operating margin of about 16.5 per cent, TNT said, repeating earlier targets.
'The sharp rise in fuel prices during the quarter and the general economic outlook have impacted both our customers and us,' Mr Bakker said in the statement.
The remainder of the year will see more customers switching to cheaper road-based deliveries from air shipments amid high fuel costs, the CEO told reporters. The company plans to cut costs at the express unit by 100 million euros to 125 million euros, with the effects expected to be fully realised in 2010, he said.
TNT has a strategy of passing on higher fuel costs to customers through fuel surcharges, causing rising prices for express shipments. Jet-fuel prices in northwest Europe have risen 43 per cent this year, Bloomberg data show.
The company aims to transport as much as possible by road rather than air, helping to hold back costs as prices for diesel fuel rise more slowly than for jet kerosene, Jan Willem Breen, head of marketing and sales at the express unit, said last month.