Deutsche Post Cuts Forecast on Strike Costs, Flawed Software

Updated on

Deutsche Post AG cut its full-year profit forecast after second-quarter earnings tumbled on the impact of a pay strike by delivery staff and a botched software upgrade at the freight-forwarding arm of its DHL business.

Earnings before interest and tax fell 18 percent to 537 million euros ($586 million), the steepest quarterly drop in almost 6 years, Deutsche Post said in a statement Thursday.

Full-year profit will be in the range of 2.95 billion euros to 3.1 billion euros, the company said -- 100 million euros lower than previously estimated because of the cost of 53 days of walkouts by members of the Ver.di union.

“The past few months were very challenging,” Chief Financial Officer Larry Rosen said in a statement. The Bonn-based company finally struck a deal with delivery workers on July 5 allowing it to hire new staff on lower wages.

Shares of Deutsche Post fell as much as 4.4 percent and were trading 90 cents, or 3.2 percent, lower at 27.37 euros as of 3.32 p.m. in Frankfurt.

Deutsche Post also paused the roll-out of SAP SE software at the forwarding arm and replaced several top managers there after the project proved too complex. Earnings at the unit fell 61 percent, the seventh straight quarterly decline.

Writedown Threat

Rosen said it’s not certain that the software roll-out will continue and that the company may face a writedown this year on the project -- not factored into company outlook -- which is valued at about 300 million euros on the balance sheet.

Commerzbank analyst Johannes Braun said in a note that the software project could be scrapped altogether, triggering a significant hit and threatening guidance through 2020 which assumes efficiency gains in freight forwarding will help lift DHL’s operating profit by 10 percent a year.

Rosen said the scrapping of the project is “not an option,” with savings from the new software a prerequisite for the unit to become competitive.

The forwarding arm is also grappling with a decline in air-freight forwarding -- a market where Deutsche Post is the world-leader -- with volumes down 7.3 percent in the quarter.

Express shipments, the most profitable part of DHL, increased 8.6 percent in the quarter, while German parcel volumes rose 8.1 percent and mail revenue continued an extended decline with a 3.6 percent drop, Deutsche Post said.

The company maintained its outlook for 2016, with Ebit forecast to be between 3.4 billion euros to 3.7 billion euros.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE