Deutsche Post Raises Forecast as Mail Unit Charges Wane

Deutsche Post AG (DPW), Europe’s largest postal service, raised its earnings forecast for this year after fewer one-time costs at the mail unit hurt second-quarter profit, lifting the stock to its highest in more than 5 years.

Earnings before interest and taxes at the mail division will reach 1.15 billion euros ($1.53 billion) to 1.25 billion euros, 50 million euros more than previously forecast, the Bonn-based company said today. Group Ebit will total 2.75 billion euros to 3 billion euros, it said. Second-quarter Ebit rose 14 percent to 619 million euros, beating the average analyst estimate of 602 million euros compiled by Bloomberg.

“Our strength in the international express business and in Germany’s parcel market has paid off once again in the past few months,” Chief Executive Officer Frank Appel said in a statement. “Our focus on cash flow generation is also increasingly bearing fruit.”

The company has avoided most of the effects of the European debt crisis that has left freight companies struggling to maintain earnings amid recessions in Europe that have pushed unemployment in some countries to record highs. Deutsche Post has focused on expansion of express-package and cargo businesses in emerging markets while seeking to stabilize the mail unit’s earnings.

Mail Earnings

The shares rose as much as 1.03 euros, or 4.8 percent, to 22.34 euros, the highest since May 28, 2008. They have gained 34 percent this year, in the third-best performance on the 22-stock Bloomberg Europe Transportation Index, valuing the company at 26.9 billion euros.

Second-quarter Ebit at the letter-delivery division surged to 223 million euros from 38 million euros a year earlier, when profit was reduced by a value-added tax payment to Germany’s government, Deutsche Post said in an online presentation.

The express-package, freight-handling and forwarding operations that use the DHL brand posted second-quarter sales growth of 1.3 percent in Latin America and 4.3 percent in the Asia-Pacific region, excluding acquisitions or disposals.

Ebit at the express unit declined 17 percent because of a year-earlier boost from disposals and the release of a provision. Excluding those effects, earnings increased 17 percent, Deutsche Post said. Profit at the supply-chain business declined 22 percent because of charges from a sale and a restructuring.

No Tailwind

Time-definite express shipments handled daily rose by an average 7.8 percent, while parcel volume in Germany advanced 6.9 percent a day. Air freight volume declined 5.7 percent, while ocean freight volume slid 1 percent. Global freight and forwarding revenue fell 4.3 percent, excluding acquisitions or disposals.

“As expected, we don’t have much tailwind from the economy,” Chief Financial Officer Larry Rosen said in an interview posted on the company’s website. “We really saw the effects of the economic environment most in our global forwarding business.”

Clients are switching some shipments from air to cheaper sea routes, while high-tech products such as smartphones and tablets use less space and weight than personal computers and laptops did in the past, Rosen said on a conference call. Revenue in express grew slower than volumes, indicating weaker pricing.

United Parcel Service Inc (UPS), the world’s largest package-delivery company, on July 23 said customers are shying away from pricier overnight packages to cheaper two-day and deferred offerings. FedEx Corp. (FDX), the world’s largest cargo airline, on June 19 said revenue from its most-expensive international shipments declined.

Deutsche Post group profit by 2015 will amount to 3.35 billion euros to 3.55 billion euros, the company reiterated today. Growth in net income this year will outpace the improvement in operating profit, the company said.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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