Dutch mail company TNT NV reported a bigger fall in third-quarter net profit than expected as the global downturn hits demand for delivery services, pushing its shares down by more than 10 percent. Europe's second-largest mail and express delivery company after Deutsche Post, TNT said on Monday its net profit fell 32.3 percent to 113 million euros ($142.2 million).
The average forecast in a Reuters poll of nine analysts was 147 million euros. TNT's results disappointed, said fund manager Corne van Zeijl at SNS Asset Management, who holds TNT shares. "The mail business also deteriorated more than I expected. We already knew about the express division from the profit warning two weeks ago," he said.
The mail division enjoys a partial monopoly in its home market and was seen as more resilient in tough economic conditions. TNT shares were down 10.7 percent at 14.37 euros by 0828 GMT compared with a 5.9 percent drop in the DJ Stoxx industrial goods and services index. The stock fell to a 5-1/2 year low during trading on October 16 after the warning on the express delivery business.
Van Zeijl said he planned to hold on to his TNT shares despite the disappointing results. "Over time, the company will be less under the influence of economic circumstances than other businesses such as chemical companies or staffing companies," he said. TNT reiterated its reduced forecast of a full-year operating margin of 9 percent for its international and express business, down from a previous target of a low double-digit figure.
It issued the new guidance for the express delivery unit two weeks ago, citing a recessionary trend fuelled by the credit crisis that resulted in lower demand for its premium air delivery service. The unit accounts for 60 percent of annual sales. Given the worsening economy and based on third-quarter results, TNT may find it difficult meeting its new targets, ING analyst Axel Funhoff said.
"The results were weaker than expected across the board, suggesting the profit warning of two weeks ago was not enough and they need to cut more. The 2008 guidance is challenged," he said. World number one package delivery company and economic bellwether UPS reported a 9.9 percent fall in quarterly profit last week and said it planned more cost cuts as customers cut back on holiday gift purchases.
TNT Chief Executive Peter Bakker said trading conditions in the European express business showed a significant deterioration in September and the first weeks of October. "We expect this pressure on volumes to persist at least in the current quarter," he said in a statement. Operating income in the third quarter fell 19 percent to 209 million euros, below an average forecast of 240 million euros. Sales were up 1.5 percent at 2.69 billion euros, matching the average forecast.
Chief Financial Officer Henk van Dalen told Reuters earlier this month the company would announce more cost and structural measures when it meets analysts on December 4, adding to the previously announced plans for 100-125 million euros in cost cuts at the express unit over the next two years. TNT trades at 8.4 times forecast 2009 earnings compared with Deutsche Post's 5.9 times and multiples of 12.7 times and 11.9 times for UPS and FedEx.