DHL earnings disappoint as the company looks to contain e-commerce delivery costs

On Tuesday, German logistics and postal provider DHL posted disappointing earnings for the 1st quarter of 2018, with headwinds from currency and the sale of one of its supply chain subsidiaries leading to a decline in revenue to 14.75 billion euros. This is down 0.9%from the 1st quarter of 2017 and falls short of consensus estimates of 15.15 billion euros. Operating profits rose a meager 2.3% to 905 million euros as the company struggled to contain costs in its postal and parcel delivery services

Earnings per share fell to €0.49, also below consensus expectations of €0.51 and down 5.8% from this point last year. Shares of DHL stock tumbled over 4% in the immediate aftermath of the announcement, though the company reaffirmed its 2018 profit targets. 

On an organic basis, after adjusting for currency and portfolio effects, DHL Group increased revenue by a respectable 6.4%. DHL CEO Frank Appel noted: “Overall, we had a good start to the year, although we still have a lot of work ahead of us during the remainder of the year.”

Post-eCommerce-Parcel (PeP)

Operating profit in DHL’s PeP division fell 9.9% during the 1st quarter despite continued increases in e-commerce-based volume and revenue. Generally, PeP revenue is weighed down by the secular decline in mail volume, but is boosted by rising e-commerce parcel growth. Mail volume has declined steadily over the past several years, but remains the largest chunk of DHL’s PeP division.

This trend continued during the 1st quarter, with strength in e-commerce helping the division to eke 1.7% growth in revenue. Appel added : “Global e-commerce continues to boom, meaning that the most important growth driver for our businesses is still intact.” However, profits were weighed down by rising transportation and labor costs, as well as increased capital expenditure to grow the business.

Express

DHL’s Express division continued to be a standout during the 1st quarter. The company’s second largest division saw a 4.9% increase in revenue during the period despite currency headwinds (+13.2% excluding currency effects), driven by gains in DHL’s time-definite international (TDI)product. EBIT rose by an impressive 16.4% in the division, helped by network improvements.

Again the rise of e-commerce helped drive performance in this segment, as much of the growth in TDI volume is driven by the proliferation of global e-commerce

Global Forwarding, Freight

Revenue growth in DHL’s freight forwarding was also hampered by currency headwinds, rising just 1.3% during the quarter (+7.2% without currency). Profit was able to post healthy gains, rising 75% on the back of yield management initiatives and an increased ability for the company to pass on higher freight rates to its customers.

Supply Chain

Revenue in the supply chain division declined 11.1% during the first quarter, as the 4th quarter sale of subsidiary Williams LeaTag subtracted a revenue source for the segment. Excluding the sale (and currency headwinds), revenues rose a respectable 3.8%. Despite this, operating profit fell 44.4% during the quarter, driven by a one-time write off of customer contracts.

Fast food chain KFC had to close most of its UK stores in February due to chicken shortages after it switched its delivery contract to DHL, though the company declined to comment on the exact associated with this situation.

Other notable results from this morning’s release include    

• Consolidated net profit fell 5.2% to 600 million euros
• Diluted earnings per share fell to €0.48
• The company maintained its profit forecast of 4.15 billion euros for 2018
• DHL reaffirmed commitment to grow profit to 5 billion euros by 2020