Deutsche Post Earnings Beat Estimates on Parcel Business

Deutsche Post AG’s second-quarter profit beat analysts’ estimates as the German parcel business and international express unit of Europe’s largest postal company expanded. The stock rose the most in four months.

Earnings before interest and taxes rose 5.7 percent to 654 million euros ($878 million), the Bonn-based company said today. That compares with the average estimate of 609.5 million euros from eight analysts compiled by Bloomberg. Deutsche Post reiterated a forecast for Ebit to rise to as high as 3.1 billion euros this year, while scrapping a 2015 target as it spends more to make the global forwarding and freight units competitive.

Economic revival in the countries sharing the euro has been unsteady since a recession ended a year ago, with France posting no growth in the first quarter, and July unemployment in the region remaining near a record 12 percent. An efficiency program helped Deutsche Post avoid much of the fallout from the contraction, and Appel is focusing on meeting demand to handle items ordered online, and expanding express operations in Asia.

“We have to acknowledge that the challenges are substantial,” Chief Executive Officer Frank Appel said in an interview posted on the company’s website. “We will really have to throw ourselves into the task and continue to improve our structural positioning in some areas.”

Technology Upgrade

Ebit next year will be “significantly” better than 2014, Deutsche Post said today. That compares with an earlier forecast for Ebit of 3.35 billion euros to 3.55 billion euros. Analysts expect the measure to climb to 3.01 billion euros this year and 3.40 billion euros in 2015, according to average estimates. Deutsche Post also said Ebit will rise to 3.4 billion euros to 3.7 billion euros in 2016.

The share rose as much as 3.8 percent, the steepest intraday advance since April 2, and climbed 3.1 percent to 23.96 euros at 10:49 in Frankfurt for a market value of 29 billion euros.

The company will lift spending on an information technology upgrade dubbed new forwarding environment scheduled to last until 2016, and will also shed low-yielding contracts in its supply chain business, focusing on more-profitable industries and regions. The company declined to quantify costs associated with these projects.

Sales advanced 0.7 percent to 13.7 billion euros, falling short of the average estimate of 13.9 billion euros, while net income rose 9.2 percent to 461 million euros, beating the estimate of 401.3 million euros.

Parcel Business

Operating profit at the mail and parcel business will be about 100 million euros higher than previously forecast this year, while the DHL units will earn about 100 million euros less than previously expected on weakness in freight forwarding, Deutsche Post said.

Deutsche Post, which claims the No. 1 spot in air-freight forwarding, said such volumes rose 1 percent in the first six months, while ocean freight advanced 5.2 percent. Both trail advances at Kuehne & Nagel International AG, where they rose 3.9 percent and 8.2 percent respectively.

“We knew the forwarding business would definitely not be a sure-fire success this year,” Appel said. “The difficult market situation has toughened competition even further. This, in turn, has really hurt margins.”

Express Product

Time definite international shipments, the company’s high-end express product, advanced 8.2 percent in the second quarter, as economies in Asia, where its DHL unit has the highest market share, outgrew Europe. That helped the express unit generate a record margin of 10.7 percent on sales. Double-digit volume growth in all regions outside Europe translated into market share gains, Appel said.

United Parcel Service Inc., the world’s largest package delivery service, on July 29 said global shipments rose 7.2 percent in the second quarter, driven by e-commerce in the U.S. and international export business.

Deutsche Post’s parcel volume in Germany rose 5.8 percent in the quarter to 236 million. Post NL NV on Aug. 4 said its parcels volumes grew 8.2 percent in the quarter.

Sanctions against Russia haven’t had an effect on the company’s operations so far, Chief Financial Officer Larry Rosen said on a conference call today.

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