Legacy postal and parcel drag on DHL Group second quarter results

Executives cite record margin in Express and strong air freight as costs in postal and parcel business weigh.

Deutsche Post DHL Group saw a 14% decline in second quarter profit despite higher revenue as margins in its German postal and parcel services dragged down results.

Despite the challenges from its legacy business, chief executive Frank Appel says the second largest global parcel service provider will reach an annual operating profit run rate of over  €5 billion ($5.79 billion) annually by 2020. Last year, DP DHL reported operating profit of €3.7 billion.

As a result of the weaker results in the post and parcel business, DP DHL expects to see full 2018 operating profit of €3.2 billion,

“The second-quarter results were in line with expectations,” Appel said. “We are clear about the challenges that face us . . . and are implementing the measures for aligning the division toward long-term profitable growth. We are confident to reach our 2020 targets.”

The Bonn-based company reported second-quarter revenue of €15 billion, up 1.4% from the year earlier quarter. Excluding the effect of the sale of a marketing division, adverse foreign exchange effects and small acquisitions, revenue rose 6% versus the year earlier.

But quarterly profit dropped to €516 million from €602 million in the year earlier.

DP DHL’s largest division by revenue, Post – eCommerce – Parcel (PeP) which includes the German postal service, saw revenue rise 3.4% to €4.4 billion. But operating profit in the division fell sharply to €102 million from €265 million in the year earlier quarter.

DP DHL attributed the fall to higher staff and transport costs in the PeP division. It also incurred restructuring costs of €61 million along with additional capital spending related to its electric vehicle manufacturing unit, StreetScooter.

Letter volume and revenue were down year-on-year. But DHL Europe and ecommerce parcel revenue were up over 14% from a year earlier.

Appel attributed the increase in the parcel business to the “booming e-commerce business” where the company “continue(s) to see tremendous potential for profitable future growth.

“We will focus more closely on our prices and costs in both the Post and Parcel businesses in order to translate the volume development into steadily rising earnings,” Appel said.

Excluding foreign exchange effects, the Express division saw its revenue gain 12% to €4 billion for the quarter thanks to strong volume in time sensitive deliveries. Volume in time sensitive deliveries was up 8.4% to 965,000 shipments per day.  

Thanks to better cost management and higher fuel surcharges helped drive stronger revenue versus shipment per day growth. Operating profit in Express gained 10% to €517 million with operating cash flow rising 39% to €753 million.

Global Forwarding and Freight saw organic revenue growth of 6% to €3.7 billion. DP DHL reported strong growth in its air freight division as selling rates reflect a tight market, the company said.  

Gross profit rising 8% despite a 5% fall in volume to 943,000 tonnes. Ocean freight saw flat gross profit of €168 million against a  1.6% decline in volume to 811,000 twenty foot equivalent (TEU) unit.

The supply chain division, which handles warehousing, packaging and returns services, reported revenue of €3.2 billion, up 2.7% excluding foreign exchange and asset disposals. Operating profit in the unit was up 3% at €128 million.