Adverse product mix leads to profit warning
TNT Express issued an (expected) profit warning this morning stating that while trading was relatively resilient in EMEA, with overall steady volume development, worsening product mix negatively impacted the 3Q11 operating performance.
Asia Pacific profitability suffers from weak Asia-Europe Demand
Asia Pacific profitability suffered from continuing weak Asia-Europe demand as already outlined in our flash note published earlier this weak, leading tosub-optimal capacity utilisation in a soft pricing environment. Domestic China saw an improved product mix but this was offset by general and wage cost inflation. The 2013 break-even deadline remains.
Brazil on schedule to break even 2H12
In Americas, Brazil’s operational quality continued to improve but revenue was not sufficient to cover the past loss of major customers. Progress has been made towards the 2H12 turnaround deadline. There will be a value assessment in 4Q11.
Update 2011 guidance
Given its challenging trading environment, TNT Express revises its 2011 estimates: 1. EMEA revenue to achieve muted growth (from modest growth, kbcs +2.7%); 2. EMEA underlying operating margin 8-9% (from ~9%; kbcs 8.9%); 3. ASPAC 2H11 to continue 1H11 trend (in-line); 4. Americas continuing negative performance being addressed through corrective measures (in-line); 5. Other networks to perform somewhat below prior year (€ 13m kbcs vs. 19m underlying EBIT); 6. annualized ~€ 50m cost savings with charges of € 45-65m (€ 50m kbcs).
TNT Express’ medium-term aims are not changed. The company will present its 3Q11 results on 31 October 2011
Conclusion:
TNT Express admitted to a profit warning this morning, stating that EMEA margins will come in at 8-9% from ~9% before and which compare to our 8.9% forecast (revised to 8.5%). Earlier this weak we already cut our 2012-13 EMEA numbers by ~12% on growing macro concerns, while we stuck to our 2011 numbers given comments by its CEO in financial newspaper Het Financieel Dagblad that the company did not see the impact of the euro-crisis yet. However, adverse mix effects will likely impact margins to a larger extent than we feared. Hence, we decided to cut further our 2011-12 Group Underlying EBIT numbers by an additional 12-7% while our eps numbers are further cut by 14% and 7% respectively.
As a result we trim our TP to € 6.4/sh (from 6.7), while sticking to our Hold rating. We are now 20% below consensus eps 2011 and 24% below 2012 consensus eps.