DP-DHL doubles third-quarter profit

Deutsche Post-DHL’s third-quarter net income more than doubled year-over-year to €1.79 billion, as total revenue declined 3.9% to €13.86 billion. Operating profit (EBIT) in the quarter almost tripled to €755 million.

This somewhat odd-looking combination – net income and EBIT up by triple-digit percentages in the face of falling revenue – resulted from  a combination of factors. On the revenue side, the continued shift in consumer shopping from physical stores to e-commerce drove growth in both the DHL Express and Post-eCommerce-Parcel divisions, with revenue up 2.9% and 4.0%, respectively. However, these modest gains were overwhelmed by declining revenue in the Global Forwarding, Freight and Supply Chain Divisions, down 6.3% and 14.7%, respectively. Forwarding revenue was “impacted by negative currency effects, lower fuel surcharges, and the generally low level of air and ocean freight rates.” Revenue in the Supply Chain division was hit by negative currency effects, and by changes in a contract with the UK National Health Service in 4Q15.

On the net income and operating profit side, the big impact was from the huge charge taken in 2015 to cover the failure of the New Forwarding Environment (NFE) program in the Global Forwarding division. Since then, the turnaround policy put into effect in the division, and overseen by DP-DHL CEO Frank Appel, has been successful, and while Global Forwarding, Freight is not providing the huge operating margins seen at rivals like Expeditors, it is at least no longer losing money.

Post-eCommerce-Parcel: Despite the ongoing decline in mail volumes, the Post business unit reported a small increase in revenue, based on higher prices and some new products. And, as expected, revenue in the eCommerce-Parcel unit rose strongly – up 11.4% – driven by the continuing growth in e-commerce.

DHL Express: As can be seen in the chart, Express revenue was up across all geographic regions and all products. And it should be noted that these gains came despite negative currency effects and falling fuel surcharges. Revenue growth was strongest in the Americas region, up 6.6% to €1.98 billion, followed by Europe (up 4.4% to €4.60 billion), Asia Pacific (up 3.0% to €3.79 billion), and Middle East/Africa (up 1.2% to €780 million.

Global Forwarding, Freight: As mentioned above, the turnaround in this formerly troubled division appears to have been successful, and profitability has returned despite declining revenue. Air freight volume was up 1.5% in the quarter, to 909,000 tonnes, but revenue was down 8.8% to €1.07 billion. Ocean freight volume was up 3.6% to 781 thousand TEUs, but revenue fell 9.7% to €833 million.