Deutsche Post Earnings Fall 6.5% on Increased Labor Costs

Nov. 8 (Bloomberg) -- Deutsche Post AG, Europe’s largest postal service, said third-quarter profit fell 6.5 percent as a pay increase at its letter-carrying unit caused spending to rise and a German mail-order customer declared bankruptcy.

Earnings before interest and taxes declined to 604 million euros ($770 million) from 646 million euros a year earlier, Bonn-based Deutsche Post said in a statement. Profit missed the 641.3 million-euro average of 11 analyst estimates compiled by Bloomberg. Revenue climbed 5.7 percent to 13.8 billion euros.

Deutsche Post stuck to its forecast that Ebit will rise this year, and Chief Executive Officer Frank Appel said in a Bloomberg Television interview that he’s “confident” of meeting targets even amid an economic slowdown in Europe. The company said profit was held back by a mail-division wage raise, the collapse of customer Neckermann.de GmbH and the loss of a workday versus the year-earlier period.

“Mail was the most disappointing” among the Deutsche Post units that missed estimates, and the effects of Neckermann’s collapse and higher wage costs were “bigger than expected. Andre Mulder, an Amsterdam-based analyst at Kepler Capital Markets who recommends buying Deutsche Post shares, said by telephone. Only the supply-chain division beat analysts’ consensus predictions, he said.

Stock Falls

Deutsche Post fell as much as 4.5 percent to 14.40 euros, the lowest intraday price since July 27, and was trading down 1.3 percent at 9:41 a.m. in Frankfurt. That pared the stock’s gain this year to 25 percent, valuing the postal operator at 18 billion euros.

The company, which is also the world’s biggest carrier of air and sea freight by volume, has focused expansion of its DHL express-package and cargo businesses in emerging markets to compensate for volume declines at the traditional mail division. DHL’s dominance of the European market may be challenged by United Parcel Service Inc., the world’s biggest package-delivery service, which is bidding 5.16 billion euros to buy Dutch competitor TNT Express NV.

The TNT takeover is the subject of an extended European Union antitrust probe, and the deal may require ‘‘substantial remedies” to gain approval, Competition Commissioner Joaquin Almunia said Nov. 2. Atlanta-based UPS is scheduled to meet EU regulators on Nov. 12 for a hearing.

Defending Rank

Deutsche Post “would feel confident with any outcome” of the UPS-TNT deal, Appel said. “We can defend our leading market position around the world.”

The German postal operator reiterated that full-year Ebit will total 2.6 billion euros to 2.7 billion euros. It boosted the range in August from an earlier forecast of 2.5 billion euros to 2.6 billion euros. Ebit last year amounted to 2.44 billion euros.

Neckermann filed for insolvency in July after it failed to reach an agreement over job cuts and restructuring plans with labor representatives.

Third-quarter Ebit at Deutsche Post’s mail division dropped 18 percent to 247 million euros. Earnings at DHL rose 5 percent to 462 million euros, Deutsche Post said.

DHL’s Ebit from express operations rose 6.9 percent to 231 million euros as revenue and volume increased in Asia and the Americas. The global forwarding and freight division’s Ebit fell 1.6 percent to 122 million euros because of technology-investment costs. Supply-chain profit jumped 9 percent to 109 million euros.

Acquisition Strategy

The German postal operator is happy with its current business units, and doesn’t anticipate making any major acquisitions or divestments, CEO Appel said.

Deutsche Post is seeking to increase profit by as much as 45 percent by 2015, targeting Ebit that year of 3.35 billion euros to 3.55 billion euros, as it reduces administrative costs and expands DHL’s express business.

DHL, which Deutsche Post acquired in 2002, plans on one-third of revenue coming from Asia within five years. It has already realized that goal at the express unit, and is adding a global forwarding hub to an express-delivery center in Shanghai and a supply-chain base in Hong Kong.

Global air-freight prices jumped 7.2 percent to $3.56 per kilogram at the end of September after falling to the lowest in more than two years in August, according to the Drewry Air Freight Price Index, which analyzes average prices along major trade routes.

To contact the reporter on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net