* Second quarter sales, EBIT, net profit less than expected
* Increases annual cost savings target to 550-600 million euros
* Pays interim dividend, says cash flow strong
* Shares up 5.5 percent
(Adds CEO comments)
By Reed Stevenson
AMSTERDAM, July 27 (Reuters) - TNT's quarterly core profit fell 45 percent, its fourth consecutive year-on-year decline, and the Dutch mail company boosted its cost savings target to cope with weaker demand for delivery services.
Europe's second-largest mail and express delivery company after Deutsche Post also decided to issue an interim dividend of 0.18 euro per share on the back of strong cash flow, which analysts took as a sign of a nascent recovery.
This helped push TNT shares up 5.4 percent to 15.99 euros by 1035 GMT, an eight-month high, compared with a 0.7 percent rise in the DJ Stoxx industrial goods and services index.
The cash or shares dividend payment was a first sign of confidence in underlying operations and dividends would continue if cash conditions remained strong, Chief Executive Peter Bakker told reporters, but added that tough conditions would continue.
"The global economy, and Europe, are still in a recession and we cannot say for sure when we can expect a recovery," Bakker said.
TNT posted earnings before interest and taxes (EBIT) of 178 million euros, compared with an average of analysts' forecasts of 184 million and 324 million a year earlier.
Excluding restructuring charges, currency effects and other items, it posted an adjusted EBIT of 226 million euros, beating an average analyst forecast of 194 million in a Reuters poll.
Revenue fell 10 percent to 2.53 billion euros.
TNT also increased its annual cost savings target for 2009 to between 550 million and 600 million euros, up from 400 million. Savings achieved so far in 2009 are 275 million.
"TNT in this second quarter report is clearly showing recovery from its lows," said Petercam analyst Thijs Berkelder in a note. "TNT further has reinstated a cash dividend payment as it clearly is more confident on its balance sheet position."
FOCUS ON CASH
Sluggish consumer spending and shrinking business investment have hurt shippers around the world, although last week Deutsche Post reported a better than expected second-quarter operating profit on the back of aggressive cost-cutting.
TNT's express business made adjusted EBIT of 89 million euros, down 42 percent and ahead of the average forecast of 55 million. In the mail division, adjusted EBIT was 138 million euros, which compared with a forecast of 143 million.
TNT said it more than doubled cash flow during the second quarter to 410 million euros from 195 million euros a year earlier, which helped it issue the interim dividend and reduce debt to 1.4 billion euros from the first quarter's 1.7 billion.
Optimising cash flow was a "key focus", the mail group said.
Asked how TNT would deploy any extra cash balance, which stands at nearly 800 million euros against about 500 million at end-2008, Bakker said TNT would try to strike a balance between paying out dividends and managing debt levels to keep its rating.
TNT also said it had formally withdrawn from discussions for a strategic partnership with Britain's Royal Mail. The British government had been talking to potential buyers for Royal Mail, including private equity firms and TNT, but shelved those plans earlier this month.
"As a result, mergers and acquisitions will be low on the list of priorities," TNT said in a statement.
TNT, a former state monopoly, also reiterated it expects to shed 11,000 postal jobs over the next three years, as it faces liberalisation of the Dutch postal market. TNT, which is also trying to finalise a collective labour agreement with its unions, said it expects to make further jobs-related announcements in the second half.
TNT is trading at 13.5 times projected 2009 earnings, while Deutsche Post has a projected price-earnings ratio of 9.4. (Editing by David Cowell and Marie Maitre)