K+N continues to squeeze profits out of a flat market

Kuehne + Nagel appears to be continuing on a sustained, if modest, upward trajectory with a growing forwarding business but with challenges in its contract logistics sector judging by the nine month results released yesterday (13/9).

The Swiss-based company said that it exploited growth in imports to the US to grow its Sea Freight business, a trend which balanced-out the declines in east-west trades. Currency fluctuations led to a slight fall in net turnover over the nine month period from CHF6,948m in 2014 to CHF6,680m. The policy has been to focus on the quality of business leading to a rise in EBIT (Earnings Before Interest and Tax) of 11.7% to CHF335m.

In air freight K+N sustained the ability to grow in what it described as a “stagnant” market, with volumes up 5.1%, whilst EBIT was up 11%. It continued to attribute its success to its orientation towards ‘vertical’ business sectors.

K+N’s Road Freight division saw a decline in net turnover of 12.1% due to the discontinuation of project business and weaker rates as a result of lower diesel prices. Year-on-year EBIT edged down by CHF1m to CHF18m.

Its Contract Logistics business has not yet turned round its performance. Apparently K+N is rationalising its business, or “restructuring selective projects”, in the UK which has continued to lead to falling revenue and profits. EBIT fell by CHF21m to CHF86m year-on-year.

Overall the company saw rising profitability, with EBITDA (Earnings Before Interest, Depreciation and Amortisation) up 4.6% at CHF777m and this was despite the significant adverse currency effects earlier in the year. However underlying demand does appear to be weak with net turnover down by 4.4%. The problem of a near-absence of growth in the core areas of sea container and air freight markets is one which will threaten K+N’s capacity for profits growth if it continues for any length of time. That said better management in contract logistics could compensate for flatter profits at forwarding.