TNT issues profit warning in face of weak Asian demand

TNT Express has issued an unscheduled warning to investors that a sudden downturn in demand for its premium express products will hit its third quarter results. The warning came just days after a general worldwide shift from air transport to ground transport for cargo was flagged by the airlines this week.

The company that split from Dutch postal operator PostNL in May has struggled over the summer, posting an 85% drop in net profits for its second quarter.

As with rivals UPS and FedEx, it has noted a particular weakening in demand from clients in Asia.

However, while rivals like FedEx have been flexible enough to shift flight capacity from Asia to other regions of the world, such as the Americas, TNT Express has been slower to act, and today was still reporting “sub-optimal” capacity utilisation.

Muted

Today, the Amsterdam-based integrator said it was revising its 2011 outlook to anticipate “muted” growth in Europe and the Middle East, with margins around 8-9% rather than the previous above-9% expectations, while sales in the Asia-Pacific region are now thought likely to remain flat, with the second half of the year in line with the first.

Shares in TNT sank 4.6% today, to a new record low, as investors responded to the warning.

In Asia, integrators have been particularly hit hard by the overall global slide in consumer spending on products like electronics, in which Asian manufacturers corner the market. TNT said it had seen some improvement in China, alhough general wage and cost inflation had sapped most of the benefit.

While the economy in Latin America appears one of the most positive parts of world trade at the moment, TNT said it has continued to struggle with the loss of major customers following the integration of its operations in Brazil.

Operational quality has improved in the country, it said today, but revenues have not yet recovered. Further corrective measures are underway, TNT promised its investors.

Cost-cutting

Globally, TNT is carrying out a global cost-reduction programme it hopes will cut its indirect costs and overheads, with expectations of annualised savings in the range of EUR 50m.

Third quarter results are to be announced on October 31.

TNT Express currently moves around 4.7m parcels, documents and pieces of freight every week to more than 200 countries, with a fleet of 50 aircraft and about 30,000 road vehicles. It has 83,000 staff worldwide, with more than 2,600 depots and sorting centres.

The company made EUR 7.053bn in revenue in 2010.

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