Record fourth-quarter earnings cap a great year for DP-DHL

Capitalizing on strong e-commerce growth and on a return to financial health by its forwarding arm, Deutsche Post-DHL reported net profit up more than 25% to €841 million in the fourth quarter of 2016. The big jump came despite revenue remaining almost flat (up just 0.5%) at €15.41 billion. Operating profit (EBIT) for the quarter rose 16.1% to a record €1.11 billion.

For the full year, the gains were even more striking, as net profit leaped 71.4% to €2.64 billion and EBIT rose 44.8% to €3.49 billion – with the gains coming despite a 3.2% decline in total revenue to €57.33 billion.

It is tempting to say words to the effect of “DP-DHL must be doing something right.” And, indeed, the company has pared costs and taken advantage of all opportunities. But one big factor in the rosy 2016 picture is that DP-DHL’s Global Forwarding, Freight division has stopped doing something wrong. The failing implementation of the New Forwarding Environment (NFE) initiative led to a substantial operating loss in the division in 2015. Abandoning the NFE and putting leadership of the division in the hands of company CEO Frank Appel led to a strong turnaround, and the Global Forwarding, Freight division is now, if not contributing at quite the level of the other divisions, at least making a solid operating profit.

Looking at the results by operating division, we start with Post – eCommerce – Parcel. As shown in the chart, P – e – P revenue was up just 2.8% in the quarter and 4.1% for the year. Not shown is that this growth was driven entirely by the eCommerce-Parcel business unit. Revenue from postal operations was down in both the quarter and the year, as price increases were not enough to compensate for continuing declines in mail volume. Revenue in the eCommerce – Parcel unit, however, jumped 10.5% in the quarter and 11.2% for the full year. Divisional operating profit was up over 30% for the year, although this was partly due to the negative impact of a strike in the prior year.

The DHL Express division continued its strong performance, with a steady increase in revenue (up 5.3% in the quarter and 2.7% for the year), and a strong jump in operating profit (up 36.4% in the quarter and 11.3% for the full year). Adjusting for negative currency issues and falling fuel surcharges, revenue was up 6.3% for the year. Revenue growth was strongest in the Americas, but positive in all regions, and package volumes grew strongly for both of the company’s core products.

In the Global Forwarding, Freight (DHLGF) division, revenue was down for both the quarter and the year, dragged into negative territory by the Global Forwarding business unit. In that unit, full-year revenue was down 11.1%, impacted by negative currency effects, lower fuel surcharges, and “the generally low level of air and ocean freight rates.” However, as is the case with all forwarders, total revenue is a poor indicator of performance, because much of it consists of transportation charges passed through to the customer. A better indicator is what Europeans call gross profit and the rest of the world calls net revenue — that is, total revenue minus these pass-through items. And by this measure, the turnaround at DHL Global Forwarding is much more obvious. For the full year, total air revenue was down 11.1%, but gross profit was flat with 2015. And, as mentioned above, although divisional EBIT was not at the level of the other three divisions, it was hugely improved over the previous year. DHLGF rebounded from an operating loss of €181 million in 2015, to a profit of €287 million in 2016.

The fourth division, DHL Supply Chain, turned in a reasonable performance despite a significant drop in revenue. This drop “was due mainly to the change in revenue recognition in connection with the UK National Health Service in the fourth quarter of 2015 as a result of the revised terms of the contract.” Adjusting for this, and for a €707 million decrease in revenue due to negative currency effects, DP-DHL said divisional revenue was up 2.0% for the year. But, despite the revenue hit, the Supply Chain division remained extremely profitable, with EBIT up 17.0% in the quarter and 27.4% for the year.

All in all, it was a very good year for Deutsche Post-DHL, and it is no surprise that our sister publication Air Cargo World chose CEO Frank Appel as its “Executive of the Year.” You can read Air Cargo World’s story on Dr. Appel here, and those interested in learning more about DHL’s thoughts on the air freight and express industry should join us at Cargo Facts Asia in Shanghai, 25 – 26 April, where Lars Winkelbauer will participate in a session on “The Impact of e-Commerce on Air Freight & Express.” Lars is DHL Express’ Vice President, Aviation, Network Planning & Control, Asia Pacific, and brings a deep knowledge of the industry to the session. For more information, or to register, go to CargoFactsAsia.com.