Deutsche Post charges undermine double-digit operating growth

German logistics and postal service giant Deutsche Post World Net said second quarter operating profits fell 4.4 percent to 672 million euros ($1 billion) due to one-time write-offs at its DHL U.S. Express division and Financial Services division.

For the first half of the year the drop off was 11 percent to 1.5 billion euros ($2.3 billion).

Excluding those charges, earnings before interest and taxes increased 18.6 percent to 862 million euros in the quarter and 12 percent to 1.9 billion euros ($3 billion) for the first half of the year.

Second quarter revenue grew 5 percent to 16.2 billion euros ($25.2 billion). First half revenue gained 3.4 percent to 32 billion euros ($49.8 billion), with growth negatively impacted by currency imbalances. Excluding those effects, revenue grew 7.8 percent.

Executives credited their positive operational performance on the company's global scale and balanced portfolio in the face of economic weakness in many parts of the world. 

We're particularly happy about the robust performance in the Mail business given we're now seven months into full market liberalization in Germany, and the growing stream of significant new business wins in our logistics divisions," said Frank Appel, chief executive officer.

Deutsche Post began competing on Jan. 1 to provide postal service in Germany after operating as a monopoly for decades.

In late May, Deutsche Post announced a major restructuring of its money-losing DHL Express unit in the United States intended to save $1 billion per year by 2011. The plan calls for ditching its two existing overnight air transporters and giving the line haul work to UPS, as well as significantly cutting back its package stations outside of major urban areas in favor of giving more delivery work to the U.S. Postal Service.

The company said Thursday that restructuring costs so far totaled 47 million euros ($73 million) and that negotiations with UPS on the planned airlift are making progress.

The DHL operation in the United States is expected to become profitable in 2011.

A corporate-wide cost-cutting initiative called the Roadmap to Value achieved 140 million euros in savings in the first half. The company is also trimming capital expenditures and increasing dividend payouts instead.

DHL's overall earnings tumbled 52 percent to 31 million euros ($48.3 million) in the second quarter and were off 46 percent for the half year, while Forwarding profits were up 36 percent to 109 million euros ($169.7 million) and 28 percent to 194 million euros ($302 million) for the second quarter and first half, respectively. Deutsche Post said DHL Express experienced strong revenue growth in international Day Definite and domestic business. Revenue growth was strong in Asia-Pacific, Eastern Europe and Middle East, assisted by fuel surcharges.

Supply Chain/Information Services earnings were nearly flat in the second quarter, but off 18 percent to 224 million euros $348.7 million) in the first half.

Supply Chain showed strong progress in new contract wins with gains of 550 million euros $856.3 million) in the first half. New Supply Chain contracts were awarded from all across the globe supporting industries ranging from oil sands in Saskatchewan, Canada, to garment production in Italy and leisure operations in China, the company said.

In the second quarter alone, Supply Chain generated new business of around 300 million euros ($467.1 million) in annualized revenue. The contract renewal rate was 90 percent.

Deutsche Post for the first time reported results in line with its March decision to split the Logistics division into separate Freight/Forwarding and Supply Chain/Corporate Information Solutions divisions.

The logistics conglomerate reiterated its full-year guidance of about 4.1 billion euros in gross operating profit, assuming no significant worsening of the global economy. The Freight Forwarding and Supply Chain divisions expect about 500 million euros in earnings, slightly lower than the formerly combined logistics division's 2007 results of 1.05 euros. 

Source: American Shipper