TNT Plunges After Abandoning Profit Target on Price Pressure

TNT Express NV fell the most in almost two years in Amsterdam after retracting its profit target as economic growth in the euro area stalled and pressure on prices increased for the Dutch logistics company.

TNT dropped a target to lift operating profit adjusted for some costs as a percentage of sales to 8 percent next year, it said in a statement. That prediction referred to the regions of Europe and the Americas and assumed economic growth of 2 percent to 3 percent in Europe. The shares declined as much as 12 percent, the biggest fall since Jan. 14 last year, when United Parcel Service Inc. dropped a bid to acquire the company.

“It is clearly disappointing to see that wider trading conditions within Europe have remained challenging,” Chief Executive Officer Tex Gunning said in the statement. The full benefits of a current efficiency program will take three to five years to arrive and an investment program and cost cuts are being accelerated, he said.

TNT Express, based in Hoofddorp, is struggling to improve financial performance as it’s increasing focus on European overland services. Euro-area manufacturing and services growth in September unexpectedly slowed to the weakest pace this year. The currency bloc’s economic expansion halted in the second quarter as its three largest economies failed to grow.

The shares were down 11 percent at 4.99 euros at 11:50 a.m., taking the decline to 26 percent this year.

Competition Probe

“With a turnaround needing to tackle several years of under-investment and under management, we think TNT’s life could get worse before it gets better,” Damian Brewer, an analyst at RBC Capital Markets in London, said in a note.

TNT also said it is making a provision of 50 million euros ($64 million) to cover potential costs that may arise from a settlement with the French Competition Authorities over alleged anti-competitive behavior in the country’s parcels delivery industry. TNT on July 16 said it was part of a probe in France that begun in 2010. FedEx Corp, Royal Mail Plc, Deutsche Post AG and La Poste SA are also affected by the probe.

“TNT is highly sensitive to economic conditions with express having the characteristics of luxurious product with high operating leverage,” Andre Mulder, an analyst at Kepler Cheuvreux in Amsterdam, said in a note to clients, calling the lowered guidance “more realistic.”

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