Deutsche Post Profit Plunges 71% on Software-Project Costs

Deutsche Post 3Q Profit Plunges 71%
  • Company books writedown, withdrawal costs for failed software
  • Parcel, mail earnings drop following strike in Germany

Deutsche Post AG’s third-quarter profit plunged 71 percent after the German delivery company booked 345 million euros ($372 million) in costs from a failed software project. The shares dropped the most in 2 1/2 months.

Earnings before interest and taxes fell to 197 million euros from 677 million euros a year earlier, the Bonn-based company said in a statement Wednesday. Profit missed the 208 million-euro average of four analyst estimates compiled by Bloomberg. The company reiterated forecasts that Ebit will total at least 2.4 billion euros this year and be in a range of 3.4 billion euros to 3.7 billion euros in 2016.

Deutsche Post cut its 2015 profit forecast for the second time on Oct. 28 after its freight-forwarding division, a key growth unit, had to halt installation of new software. That followed an earlier 100 million-euro forecast reduction due to German mail-network strikes by members of the Ver.di union.

This year “remains a transition year and there should be a clear pickup in earnings starting from 2016,” Dirk Schlamp, an analyst at DZ Bank, said in a report to clients. “However, there is a lack of clarity about the further development of the freight business.”

Deutsche Post fell as much as 4.3 percent, the steepest intraday decline since Aug. 24, and was trading down 2.5 percent at 26.37 euros as of 9:23 a.m. in Frankfurt. That propelled the stock’s decline this year to 2.5 percent, valuing the company at 31.9 billion euros.

Net Drops

Net income dropped 90 percent to 49 million euros from 468 million euros. Sales rose 3 percent to 14.4 billion euros, primarily because of currency gains.

The freight-forwarding unit posted a 337 million-euro Ebit loss in the quarter compared with year-earlier profit of 71 million euros, following a 308 million-euro writedown on the software project and 37 million euros in provisions for withdrawing the technology from sites where it was installed. Deutsche Post is still looking at whether any of the software can be adapted to its new information-technology strategy, Chief Financial Officer Larry Rosen said in a Bloomberg Television interview.

Earnings at the express-shipments unit, the most profitable part of the company’s DHL brand, increased 19 percent, while German postal and parcel profit fell 51 percent because of the strikes.

Of 200 million euros in full-year provisions for legal and regulatory costs outlined in October, Deutsche Post booked 81 million euros in the quarter. That included 39 million euros related to a dispute between the freight-forwarding division and an unidentified joint venture partner.

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