Kuehne & Nagel Profit Growth Halted by Franc, China Slowdown

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Kuehne & Nagel International AG’s first-quarter operating profit failed to grow as the Swiss franc’s gains on currency markets weighed on revenue at the world’s biggest sea-freight forwarder and Chinese shipments slowed.

Kuehne & Nagel fell the most in three months in Zurich trading after reporting earnings before interest and taxes unchanged from a year earlier at 190 million francs ($194 million). That marked the first time in nine quarters that operating profit didn’t advance. The figure lagged behind the 196.9 million-franc average of seven analyst estimates.

Europe’s economic growth has been slower than in other regions following a recession in countries using the euro that ended in early 2014. China’s gross domestic product expansion is also decelerating, and its exports dropped 15 percent last month. Those effects were compounded by a Swiss National Bank decision in January to abandon a cap on the franc’s value against the euro that caused the country’s currency to surge.

Kuehne & Nagel dropped as much as 3.9 percent to 139.80 francs, the steepest decline since Jan. 16, and was trading down 2.5 percent as of 3:12 p.m. That pared the stock’s gain this year to 4.9 percent, valuing the Schindellegi, Switzerland-based freight forwarder at 17 billion francs.

Dropping Customers

The company is scaling back the number of supply-chain customers to pursue the most profitable business while restructuring its road activities. Kuehne & Nagel said it expanded faster than competitors in air freight and more slowly in ocean freight in the quarter.

Air-freight volume handled in the quarter rose 6.7 percent, about double the rate of the wider market. Sea-freight volume declined 0.7 percent on weakness in Asian-European trade that the company said it didn’t foresee.

The performance of the sea-freight division was a “surprising weakness,” with handling at the unit falling for the first time since 2009, Michael Foeth, an analyst at Vontobel, said in a report to clients.

Shares of A.P. Moeller-Maersk A/S, owner of the world’s largest container line, dropped as much as 3.9 percent after the Bimco shipping association said in a report that industrywide freight rates for Shanghai-to-Europe routes, including surcharges, amounted to $466 per 20-foot-equivalent unit as of Friday, the lowest price since 2009. The Chinese export decline in March was the fastest in more than a year.

Volume Forecasts

Kuehne reduced its full-year forecast for global sea-freight volume to growth of 3 percent to 4 percent, after saying in February the figure would rise as much as 5 percent. Sea-freight handling will be in line with market developments, it said, in contrast to the February prediction that volume gains would outpace market growth by 50 percent.

Exchange-rate shifts cut first-quarter operating profit by 7 percent and sales by more than 6 percent, Kuehne & Nagel said. Revenue excluding customs duties and taxes fell 0.8 percent to 4.1 billion francs. Ebit at the sea-freight business increased 11 percent, excluding exchange-rate effects, while currency fluctuations reduced the reported gain to 2.2 percent.

“Currency shifts will influence trade lanes,” though companies in the euro zone will eventually turn to other supplier countries if Chinese products become too expensive as a result, Chief Executive Officer Detlef Trefzger said on a conference call. “Global growth has not seen any setbacks compared with two months ago, so we are very confident for the remainder of 2015.”

Kuehne reiterated that its air-freight unit will grow faster than the market’s forecast expansion of 4 percent to 5 percent, while overland activities will keep pace with competitors on average and the contract-logistics business will grow twice as fast.

The company plans to raise Ebit to 5 percent of sales. The margin stood at 4.6 percent in the quarter, unchanged compared with the year-earlier period, after amounting to 4.7 percent for all of 2014.

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