DP-DHL sustains profits and revenue growth but the devil is in the detail

An apparently uneventful quarter for Deutsche Post–DHL (DP-DHL) hid some disappointing performances at its freight forwarding business.

The top-line numbers for the group were moderate with revenue up 0.7% year-on-year at €13,695m and EBIT (Earnings Before Interest and Tax) up 5.7% year-on-year, although as ever with DP-DHL the results were battered by currency fluctuations and exceptional items.

Drilling-down, the results of the different businesses varied considerably. As has been the case over the last couple of years the Express division continued to prosper driven by its time-definite services orientated to e-commerce. Year-on-year revenue was up 2.5% and EBIT was up 17.7%. DHL Express said that underlying demand continued to be reasonably strong with underlying revenue growth over 7%.

Things were a little more complicated at the Post-Ecommerce-Parcels (PeP) business. Although volumes are generally increasing modestly, it appears to be struggling with higher costs and the demand for further investment in the parcels operation. Consequently although revenue was flat year-on-year, EBIT fell by 21%, although this was due to yet more exceptional items. If these had been stripped out operational profits would also have been flat.

The performance of the freight forwarding business was less happy. Revenue at the division fell by 2.1% year-on-year although DHL commented that the underlying trend after currency fluctuations was an increase of around 2.1%. EBIT fell heavily by 21.3%. The underlying volume demand was not too bad with air freight up 2.1% and sea freight up 5.6%. However in sea freight particularly DHL Forwarding appears to have lost pricing-power, with DHL commenting that “Ocean carriers are effectively controlling supply and demand. For example, available capacity is effectively limited by adjusting travel speed, whilst the rates agreed upon are increased”.

In contrast the contract logistics business at DHL Supply Chain continued its gradual improvement with revenue up by 2.3%, depressed slightly by currency effects whilst the 38% jump in EBIT was flattered by poor results last year but never-the-less illustrates that the business is establishing a respectable margin.

These results illustrate that DP-DHL has sustained its profitability and continues to grow but generalisations about its performance are difficult. It might have been expected that its PeP business would have grown faster, especially when contrasted with the Express business, whilst its contract logistics business is recovering as freight forwarding continues to suffer.