Deutsche Post DHL today presented a 55% drop in Q3 operating profits as an expected heavy loss in the post & parcel business wiped out high Express profits and better Forwarding and Supply Chain results but remained confident about full-year and future financial results.
The German group increased revenues by 1.4% to €14.8 billion in the July – September 2018 quarter but reported a 55% fall in operating profit to €376 million. Net profit slumped as much as 77% to €146 million.
However, CEO Frank Appel remained upbeat about the group’s outlook, confirming the earnings targets for 2018 and 2020 and telling journalists at a press conference in Bonn that the ongoing restructuring measures in the Post – eCommerce – Parcel (PeP) division “are making good progress” in reducing costs.
“Deutsche Post DHL Group remains in good shape with our fundamental growth drivers intact. This is especially evident in the continued good performance of our DHL Express, Global Forwarding, Freight, and Supply Chain divisions in the third quarter,” he said.
“We are tackling the challenges in our Post – eCommerce – Parcel division with determination and are making good progress in implementing the announced measures to improve productivity and the cost structure. The results of our efforts will already be clearly visible over the coming year,” he added.
The underperforming Post – eCommerce – Parcel (PeP) division was to blame for the overall financial decline, with flat Q3 revenues of €4.3 billion and an operating loss of €209 million compared to a profit of €307 million in the same period last year. This included restructuring costs of €392 million out of the total €500 million announced in June.
In Germany, Post revenues declined by 4.4% year on year to €2.3 billion as mail volumes fell by 5.5%. DHL Parcel Germany maintained mid-single-digit growth with revenues up by 6.7% to €1.3 billion and volumes up by 7.4% to 347 million. These two units, which will become the new Post & Parcel Deutschland division from next January, reported a quarterly operating loss of €207 million compared to a €313 million profit last year due to the restructuring measures, which include early retirements, cost savings and price increases.
The international parcel business, which will be split off as DHL eCommerce Solutions next January, continued its fast growth and reduced its operating loss to €2 million from €6 million a year ago. DHL Parcel Europe revenues grew by 10.3% to €527 million while DHL eCommerce revenues increased by 6.2% to €395 million. Volume figures were not disclosed.
CEO Appel told journalists that he expected to continue running the PeP/Post & Paket Deutschland division on an interim basis into 2019 as the restructuring measures were implemented. He said enough employees had applied for early retirement to fulfil the restructuring programme’s target but he declined to comment on media reports that DHL Parcel chief Achim Dünnwald had been dismissed from his position.
Appel also underlined the group’s commitment to “sustainably developing” the international e-commerce parcels business both in Europe and overseas, saying that the new DHL eCommerce Solutions division is targeted to make a profit of up to €100 million by 2020.
Meanwhile, the three DHL divisions all performed strongly during the July – September quarter, driven by international trade and e-commerce growth, and increased their combined operating profit by 14% to €667 million.
DHL Express revenue rose by 7.2% to €3.9 billion, and on an organic basis even by 9.1%, the company said. The upward trend was once again driven by solid growth in the international time-definite (TDI) delivery business, where daily volumes rose by 5.3% and revenues by 7.9% compared with the prior-year period. Express operating profit rose by 9.9% to €409 million on the back of strict yield management and continuous improvements in the network, and the operating margin improved slightly to 10.5%.
At a regional level, DHL Express increased Europe revenues by 6.2% to €1.7 billion in the third quarter, with TDI daily volumes up by 6.8% and revenues by 9.4%. Asia Pacific revenues rose by 2.3% to €1.4 billion, with TDI daily volumes up by 3.1% and revenues by 5.1%. In the Americas, revenues soared by 12% to €812 million, on the back of an 1.7% rise in TDI daily volumes and 11.2% increase in revenues.
The Global Forwarding, Freight division maintained the positive trend of previous quarters during the third quarter of 2018. Divisional revenue was up by 4.2% to €3.7 billion, despite the more selective approach taken with regard to the profitability of certain contracts. Adjusted for negative currency effects, revenue improved by an even more substantial 6.8%. Gross profit, which is an important performance indicator for Global Forwarding, Freight, continued to develop very positively with an increase of 4.2% over the prior year to €887 million. As in previous quarters, the division succeeded in translating its upward trend in gross profit into a significant EBIT increase in the third quarter. As a result, operating profit at Global Forwarding, Freight climbed by 58.2% to €106 million.
Revenue in the Supply Chain division fell to €3.3 billion due to negative currency effects and the sale of UK subsidiary Williams Lea Tag but was up by 2.3% after adjusting for those factors. Operating profit improved by 3.4% to €153 million, and the EBIT margin rose to 4.7% which is within the medium-term target range.
Looking ahead, DP DHL confirmed its revised financial forecast of EBIT of around €3.2 billion this year, including €3 billion from the DHL divisions and €600 million from the PeP division. The group still intends to increase operating profit to more than €5 billion by 2020. Post & Paket Deutschland and DHL eCommerce Solutions are expected to contribute around €1.7 billion and the DHL divisions around €3.7 billion to that total.
