DP-DHL profits indicate an emerging trend

Deutsche Post- DHL’s second quarter profits continued on the slightly strange trajectory of the company over the past year or so. Profit growth was driven by its Mail division, whilst the Express business managed to grow its international premium services, but its forwarding and contract logistics business saw a deteriorating performance.

Deutsche Post Mail has sustained its position as the most profitable part of DP-DHL, but underlying profits are not really heading in an upward direction. The 4.4% year-on-year increase in revenue may have been driven by a combination of higher demand in e-commerce related parcel business in Germany and better performance in international mail, however underlying profits fell due to higher wage costs. Its Earnings Before Interest and Tax (EBIT) were flattered by the effect of a VAT payment in the same period last year. Consequently, operational profit jumped back to €223m this year from €38m in Q2 last year.

The Express business continued its surprising success in exploiting the intercontinental express market. The top line revenue number fell by 0.2% year on year to €3,237m, but DHL Express stated that after stripping-out the effects of currency fluctuations and the sale of the domestic express businesses in Australia, New Zealand and Romania, revenue increased by 4%. The top line EBIT figure fell by 19% year-on-year, but again DHL attribute this to VAT payments. DHL stated that stripping-out these taxes would result in a “double-digit gain in EBIT and a significant rise in the operating margin to more than 9%”.

The problems at DHL Global Forwarding and DHL Supply Chain were more severe. In the ‘Global Forwarding, Freight’ division revenue fell by 6.3% to €3.7bn and EBIT fell 6.5% to €129m. DHL state that these numbers reflect a 4% underlying fall in revenue and a parallel fall in profits. The cause of this fall was a general drop in volume focused on technology and engineering customers.

The ‘Supply Chain’ contract logistics business saw a rise in revenue, but a severe fall in profits. Top line revenue increased by 1.4%, but DHL stated that underlying growth was nearer 6%. However, EBIT fell by 21.8% which DHL blamed on “one-time expenses related to disposals and small restructuring charges.”

The top-line revenue at group level was down 0.6%, but DP-DHL claim an underlying rise of 2%, whilst EBIT rose by 14%. However, the profit numbers are flattered by the previous year’s VAT payment. Forward momentum is modest with the exception of DHL Express’ ability to deliver in International Express, which is a contrast to its two biggest rivals. Elsewhere, Mail is still wrestling with higher costs although the demand picture is reasonable, whilst Forwarding and Supply Chain still have yet to point profits in the right direction.