- Share price rises as earnings beat analyst estimates
- Package volumes up, though overcapacity clips prices
Royal Mail Plc posted earnings that were little changed, beating expectations, as it accelerated cost cuts in the U.K. and the GLS parcel-delivery service boosted volumes.
Adjusted operating profit before transformation costs was 342 million pounds ($522 million) in the first half ended Sept. 27, London-based Royal Mail said in a statement Thursday, ahead of the 331 million pounds predicted by analysts.
Britain’s 500-year-old postal service is seeking to cope with a long-term decline in letter writing while tapping a surge in parcel demand as more people buy online. Parcel prices are under pressure in the U.K. amid 20 percent overcapacity and Amazon.com Inc.’s expansion of an in-house delivery service.
“It adds a lot of capacity, so you’re going to see pricing pressure,” Chief Executive Officer Moya Greene said in an interview. “It’s very hard to do what Royal Mail has done, which is to try and remain pretty disciplined on price, because there’s no question this is an intensely competitive market.”
Shares of Royal Mail rose as much as 5 percent and were trading 4.1 percent higher at 473 pence as of 8:04 a.m. in London, taking gains this year to 10 percent and valuing the company at 4.7 billion pounds.
Parcel volumes rose 4 percent in the U.K., with revenue up 1 percent, while GLS, which operates across Europe, boosted volumes 9 percent and sales 8 percent.
Royal Mail’s financial position is “good,” though with limited revenue potential in the near term, “it’s down to on-going cost control to improve earnings,” said Gert Zonneveld, an analyst at Panmure Gordon in London who rates the stock “hold.”
Shares of letters competitor U.K. Mail Group Plc fell 12 percent Wednesday after it cut payouts to investors and said margins are shrinking.