TNT Express’ first-quarter consolidated revenue fell 4.5% from the same period last year (down 4% excluding foreign exchange). The decline was partly the result of softer Asia Pacific business, including sluggish export activity to Europe. Price competition and a continued mix shift to loweryielding shipments in Europe also contributed.

Excluding foreign exchange, revenue was down 1% in the core Europe, Middle East, and Africa region, driven by underlying rate pressures, unfavorable product mix, and fewer working days. Throughout the past year, customers have been trading down to international economy shipments, which are growing faster than higher-yielding international express shipments. These factors were only partly offset by a rise in intercontinental air cargo activity.

The Asia Pacific segment posted an 8% adjusted revenue decline, reflecting a 2% volume contraction and 4% fall in revenue per consignment. Anemic volume trends are stemming from softer intercontinental demand (sluggish economic conditions in the West) and intentional reductions in less-than-truckload volumes in the China Domestic business (Hoau). As previously announced, TNT recently sold its China Domestic operations, though the transaction will probably not close until year end thanks to delays associated with regulatory requirements in China.

Excluding the previously disclosed EUR 200 million breakup fee from UPS, TNT’s adjusted EBIT margin fell 80 basis points to 2.3%, due in part to the weak pricing conditions in Europe. We note that the firm continued to narrow its operating losses in Brazil with help from previous optimization initiatives, though segment results are now included in discontinued operations since the firm expects to divest the business.

We do not anticipate making material changes to our fair value estimate or moat rating.