Upbeat Deutsche Post DHL predicts further strong growth and is open to M&A deals

Deutsche Post DHL today presented strong quarterly results, including record Express profits, driven by a B2B recovery across all businesses along with ‘normalisation’ of high B2C growth rates, and expects similar trends for the rest of 2021 and beyond.

Amid increasing freight market consolidation, the German logistics group also signalled potential interest in ‘opportunistic’ M&A deals. Top competitors DSV and Kuehne + Nagel have each made major acquisitions in recent months (Agility and Apex respectively) while new rival GXO Logistics has been split off from XPO Logistics.

CEO Frank Appel said on the Q2 earnings call in response to an analyst question that Deutsche Post DHL has “no strategic need” for acquisitions as it already has the world’s biggest logistics network. But he commented: “If there’s a good opportunity, we would consider that. It’s opportunistic, not strategic.”

Trade and e-commerce drive growth

DP DHL is currently benefiting strongly from the recovery of world trade, which is driving a comeback in B2B shipments, as well as continued e-commerce growth, which is generating high B2C increases, albeit not at the exceptional levels seen at the peak of the pandemic last year.

In the April – June 2021 quarter, the group increased revenue by 22% to €19.5 billion on strong volume growth in its five divisions. Operating profit (EBIT) rose to €2.1 billion, which represented a 10.7% margin, and net profit more than doubled to €1.3 billion.

“After the global economy had experienced an unprecedented downturn last year, all of our divisions now make a pivotal contribution to accelerate the recovery of global trade. Our entire team performed brilliantly in an environment that remained challenging, enabling us to achieve an outstanding quarterly result,” Appel declared.

“After more than a year into the Covid pandemic, e-commerce has seen structural growth and shipment volumes reached a substantially higher level. At the same time, our business is benefitting from a resurgence in business customer activities,” added CFO Melanie Kreis. “Based on significantly elevated demand for logistics solutions, all divisions are able to utilize their networks more efficiently than ever before. Thus, we have an excellent position to grow further profitably in the future with targeted investments in our core business and digitalization.”

Record DHL Express profit margin

Top performer DHL Express more than doubled its operating profit (EBIT) to €1,177 million in Q2, 2021, from €565 million in the same period of last year, and achieved a very high margin of 19.8%, well above last year’s 12.5% figure.

The division increased quarterly revenue by as much as 31.8% to €5.95 billion, with strong growth in all regions: Europe +39.2%, Americas +37.5%, Asia Pacific +20% and Middle East/Africa +23.1%. These increases were driven by higher volumes, with international time-definite express (TDI) shipments up by 20.2% worldwide. TDI volumes grew by 23.6% in Europe, in Asia Pacific by 9.8% and in Americas by 36.7%.

At a product level, B2B volumes made a strong comeback, rising by more than 25% (per day) on the same quarter of last year, when the pandemic hit demand heavily. Daily B2C volumes increased by more than 10% as last year’s very high growth rates normalised but still remained above last year’s levels.

Moreover, DHL Express increased air capacity with 11 additional planes during the quarter and further improved its already high network utilisation.

Kreis explained to analysts that DHL Express has a strong rise in average weights due to the comeback of heavier B2B shipments and noted that the division’s Emergency Surcharge was working “really well” to offset higher aviation costs due to the shortage of bellyhold capacity and the resulting need for freighters.

2-digit growth continues at DHL Parcel Germany

E-commerce remained the key motor at Post & Parcel Germany, generating a 7.4% rise in quarterly divisional revenues to €4.2 billion and a 19.3% EBIT improvement to €315 million.

DHL Parcel Germany maintained its double-digit growth with a 13.9% rise to revenues of nearly €1.7 billion on a 13.4% volume rise to 457 million parcels. Growth continued even after the gradual re-opening of retail shops in Germany during the quarter, although not at the pace of previous months.

Profits surge at DHL eCommerce Solutions

The international parcels division DHL eCommerce Solutions also profited strongly from e-commerce growth in its key markets. Its revenue grew by 23.4% to €1.4 billion, with Europe up 22% to €779 million, the Americas 23% higher at €499 million and Asia up 32.5% at €159 million. “Significant revenue growth of more than 25% was achieved in Cross Border Solutions, which enables European online retailers to ship across Europe with DHL Parcel Connect,” the group noted.

DeCS improved its network capacity utilization significantly compared with the previous year, helping it to boost profits from just €1 million in the prior-year quarter to €116 million in the second quarter of 2021. With an EBIT margin of 8.1%, profitability in the second quarter was significantly above the prior-year figure of 0.1%.

Air freight volumes soar

Meanwhile, the two B2B-focused divisions also benefited from the recovery in world trade. DHL Global Forwarding, Freight increased EBIT by 64.2% to €312 million as revenue grew by 26.5% to €5.2 billion in a market that remained challenging. While ocean freight volumes were on pre-pandemic level (but +20.5% year-on-year), air freight volumes increased even significantly above the pre-pandemic level (and +35.7% year-on-year).

DHL Supply Chain also performed strongly, with a 21.3% rise to revenues of €3.3 billion, and improved operating profits to a Q2 record of €198 million. Customer activities increased significantly, particularly in the Life Sciences & Healthcare and Automotive sectors, driving double-digit revenue growth in all regions.

Planning for dynamic peak

Looking ahead to the rest of 2021, Kreis told analysts that the group assumed the B2B recovery would continue while the B2C growth normalisation trend might vary from market to market.

DP DHL’s priority would be to ensure sufficient capacity for peak season and maintain high service levels, she said. “We are going to plan for a dynamic peak. There might be over-capacity if the volume doesn’t come, though,” she commented.

Appel stressed: ““I’m very certain we will deliver very good service quality in peak 2021.” Looking further ahead, he predicted that the current trends of rising demand and limited capacity would continue, enabling further price rises in different businesses. “The fundamentals – volume, pricing, capacity – will not change,” he forecast.