Freight update tempers Deutsche Post profit outlook

* Fourth-quarter results hit by freight restructuring

* Expects freight forwarding to grow profit in 2016

* Company meets 2014 guidance, to pay 0.85 euro dividend

* Shares (Berlin: DI6.BE - news) drop 4 pct, underperform DAX index (Adds CEO comments, shares, parcels detail)

By Victoria Bryan

BONN, March 11 (Reuters) - Postal and logistics company Deutsche Post DHL Group set a slightly lower than expected profit target for 2015, with a modernisation of its freight business dampening earnings.

The restructuring programme at its freight forwarding business, dubbed NFE and comprising an IT overhaul, has been more difficult than anticipated, Chief Executive Frank Appel told journalists after the group's fourth quarter results on Wednesday.

The freight industry is mostly still dependent on paper documents. Industry bodies such as airlines' association IATA have urged airlines, freight forwarders and ground handlers to cut shipping times by moving to digital forms.

Board member Roger Crook said the challenge was getting people to shift from paper to data-rich systems and also in ensuring the quality of the data, but that he expected a return to profit improvement at the unit in 2016.

The need for additional investments in the programme led Deutsche Post (Other OTC: DPSGY - news) , known worldwide for its DHL delivery services, to scrap its original 2015 profit target last year and also weighed on fourth-quarter profits.

Deutsche Post said it now expects operating earnings of between 3.05 billion and 3.2 billion euros ($3.3-3.4 billion) in 2015, against the average analyst forecast for 3.24 billion in a Reuters poll.

Its shares, up 12 percent so far this year, dropped 4 percent as analysts pointed to the cautious outlook.

PARCEL JOBS RUSH

For 2014, Deutsche Post reported earnings up 3.5 percent to 2.97 billion euros, helped by growth at its time-sensitive express deliveries and its parcel business.

Like other former postal service monopolies in Europe, such as Britain's Royal Mail (LSE: RMG.L - news) , Deutsche Post is seeing its traditional letter business shrink while deliveries of parcels are rising thanks to online retailing.

A move to hire up to 20,000 people in a new German parcels division at lower pay to keep costs competitive has drawn ire from union representatives but Appel said the new division had already attracted 4,000 employees.

Rivals in the parcel delivery business include UPS, TNT and UK Mail (LSE: UKM.L - news) , as well as Amazon.com (NasdaqGS: AMZN - news) , which is carrying out more of its own deliveries.

Deutsche Post reported fourth quarter earnings before interest and tax (EBIT) below expectations at 905 million euros due to a 48.6 percent fall in profits at the freight forwarding division.

The company also announced plans to increase its dividend to 0.85 euros a share from 0.80 euros.

($1 = 0.9354 euros) (Reporting by Victoria Bryan; Editing by Keith Weir)