Buying TNT
With new takeover rumors swirling around TNT, the company did its part to satisfy the chatter, although hardly on the scale that has TNT's name making the rounds on the mergers and acquisitions market. The Netherlands-based express, mail and logistics giant added two highly targeted postal businesses to its TNT Post operation, shoring up its outlook for the direction of the European distribution and delivery market.
But the additions of Italy's TMW Italia and British courier JD Williams to the mail operation still left TNT with at least one far larger transaction in its business plan still undone.
TNT says divestment of its logistics remains "in progress," as the company seeks to shake off an operation that counted some $1.1 billion in revenue in the first quarter. The basic operating profit of more than $25 million marked an improvement from last year but the slim profit margin also was the latest sign of why TNT wants to rid itself of one of the world's largest contract logistics operations to focus on the higher margins in the express and mail market.
"Our performance clearly supports the strategic direction that we started with our Focus strategy," Chief Executive Officer Peter Bakker said in releasing TNT's results for the fiscal first quarter ending March 31.
Brown Sugar
But there are growing suggestions that TNT's strategic direction may not be entirely its own making.
UPS's chief financial officer, Scott Davis, said last month in a conference call with investment analysts UPS will be "more aggressive" about acquisitions, raising new questions about how a company that bought the $2.5 billion business of Menlo Worldwide Forwarding and a $1.6 billion domestic trucker could be a more aggressive buyer.
One answer is in the international express and logistics market. UPS has looked at acquiring TNT in the past, according to industry sources, and officials in the European logistics industry said privately that TNT is back in the parcel giant's sites as UPS puts more attention on the international arena.
TNT would be an expensive buy if swallowed whole, and it's gotten more expensive since the company started buying back public shares late last year. But the company could be broken apart, and with more than $3.1 billion in cash on hand this spring UPS is not likely to get sticker shock.
TNT has the European network to give UPS a heavyweight response to DHL in the Deutsche Post-owned operator's back yard, and TNT's large and growing mail operations are becoming more attractive in an era of postal deregulation in Europe. At the same time, there are growing signs that the lines between postal and private delivery are blurring around the world.
TNT Post said as much in buying JD Williams in the United Kingdom, where TNT Post UK already handles 60 million letters a month in a U.K. postal market that was liberalized in January. It puts TNT Post more directly in competition with Royal Mail.
"This network acquisition is a big development for the TNT Post business that really propels us forward in terms of business growth and our position in the U.K. postal market," said Nick Wells, CEO of TNT Post UK.
The purchase in Italy isn't nearly as ambitious but fleshes out the TNT service, "creating a strong hub in a sector characterized by extreme fragmentation," TNT said.
More euros
TNT's claim that contract logistics cannot deliver the profit margins of the asset-based delivery operations has been derided in some logistics circles, but the company's latest financial report makes a strong case for the express and mail business.
The company's $3.4 billion in revenue in the first quarter was 8.9 percent better than the same period last year and its $417.7 million profit from continuing operations was 14.2 percent better than last year and built almost entirely on the strong returns from that postal and express business.
The express segment, which makes up more than half of TNT's portfolio, counted more than $1.8 billion in revenue and with nearly $160 million in operating profits – 30.5 percent better than last year – the unit produced an 8.6 percent margin that was its best ever in the first quarter.
TNT is integrating its Freight Management segment, a unit more devoted to basic freight forwarding than the TNT Logistics operation, into TNT Express and that process, as the company said, "is ongoing."
The margins for mail were even better, at nearly 22 percent, and TNT cut nearly $20 million in costs from its core Dutch mail business.
That's part of a larger effort to cut overall costs by nearly $100 million over the next year.
For express, TNT said the major growth, TNT said, came in Italy, Germany and the Benelux region and Australia showed "marked improvement." But the world's largest air express market, North America, remains just "Express Rest of the World" to TNT, a gaping hole that could, of course, be solved by an acquisition.
