Deutsche Post Reports Lower Profits

Oct. 30, 2008
Deutsche Post World Net (DPWN) announced operating profits fell in the third quarter due to declining express business and slower growth in other divisions

Deutsche Post World Net (DPWN) announced operating profits fell in the third quarter due to declining express business and slower growth in other divisions. It reduced its full-year profit outlook and withdrew its profit forecast for 2009.

Full results will be released November 10, but in a preview of third-quarter results, EBIT before non-recurring effects dropped about 8% on last year’s €468 million. EBIT rose 26% in the third quarter, up from last year’s €1.68 billion, reflecting a one-off €572 million government repayment. Year to date, EBIT rose slightly (1.3%).

Preferring a cautious outlook, according to John Allan, CFO, “The third quarter was a challenging quarter and we expect the overall environment to remain so in the near future.”
DHL Express underlying EBIT dropped by €30 million due to the general express market slowdown and the ongoing deterioration in the US express business. DHL is accelerating and increasing its restructuring measures in the US as it continues to see a clearly deteriorating market there. The North American express operation was losing market share, in part because it was terminating some unprofitable contracts. Its two main rivals in the US, FedEx and UPS, have both mounted aggressive competition.

DHL Express is currently negotiating an agreement to outsource air lift to UPS which Allan acknowledged would have to reflect a different volume picture in the current and projected market.

Allan reiterated DPWN's commitment remain in the US express market, in part to support its global network.
The express market outside North America was up 11% over last year though non-US express volumes grew only about 3% in the third quarter. Europe volumes were up just 1.5%, and only the Europe Europe/Middle East/Africa region was still showing strong volume growth with a 12% rise, he noted.

The economic slowdown is now affecting all regions, including China. DHL Global Forwarding saw a slight drop in air freight volumes during the quarter and the ocean freight volume increase, though double-digit, was lower than the previous quarter.

The supply chain division maintained profit growth in its core activities and has generated new business worth an annual €1 billion during the year to date period, compared with €885 million in the year-earlier period.

DPWN now expects underlying EBIT for the full year of about €2.4 billion, roughly 10% below last year. The main shortfall will come from DHL Express.

DPWN now expects world economic growth to continue to slow or even turn into a recession in some developed markets. This should materially impact business prospects.

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