Express shines in DP-DHL’s first quarter

DP-DHL 1Q15Deutsche Post-DHL reported first-quarter net income down 1.4% to €495 million, as total revenue increased 8.8% to €14.77 billion. Operating profit (EBIT) for the quarter was down 1.0% to €720 million.

DP-DHL has four reporting divisions, and in the first quarter two of them turned in strong performances, while the other two did less well, placing a drag on overall performance.

The star of the quarter was DHL Express, which reported operating profit up 20.3% to €332 million as revenue increased 12.5% to €3.2 billion. Regarding revenue, the company pointed out that much of DHL Express’ business takes place outside the euro zone, which led to a positive exchange rate effect of €296 million. Adjusting for this, revenue was up 2.3%.

As can be seen in the lower portion of the chart, DHL Express’ average daily shipment volumes grew strongly, up 7.1% for Time Definite International (TDI), and up 5.3% for Time Definite Domestic (TDD). Yield rose at a slower rate than volume – up 3.5% for TDI and flat with 1Q14 for TDD, but DP-DHL said this was a result of decreasing fuel surcharges, rather than any decrease in pricing power.

The Post – eCommerce – Parcel division (renamed and slightly revamped from the company’s old Mail segment) reported only modest gains in operating profit and revenue, but with an almost 10% operating margin, the results have to be considered as very good. As expected, and as is the case with postal services everywhere, DP’s letter volume continued to decline. Overall mail volume was down 5.6%, and revenue was down 1.7% to €2.56 billion. This was offset by strong growth in the eCommerce and Parcel business, which reported revenue up 13.7% to €1.54 billion.

Regarding the other two divisions, both were profitable, but much less so than in 1Q14. In the company’s own words: “As expected, earnings were adversely impacted by transformation costs incurred in the Global Forwarding, Freight division and restructuring costs in the Supply Chain division.”

Air freight forwarding volume was almost flat with 1Q14 (up 0.3%) at 935,000 tonnes, and air freight revenue rose 11.9% to €1.29 billion. Ocean freight volume was up 2.3% to 704 TEUs, while revenue from ocean freight rose 12.2% to €940 million. Despite the revenue increases, divisional EBIT for DHL Global Forwarding, Freight plummeted 65.3% y-o-y to just €17 million as a result of “high direct and indirect NFE expenses.” NFE is the “New Forwarding Environment” program under which the company is “transforming” its forwarding activities in a search for increased profitability. Also noteworthy is that following the end of the quarter, divisional CEO Roger Crook resigned and has been replaced (on an interim basis) by Renato Chiavi.

Revenue in the DHL Supply Chain division was up 12.4% to 3.94 billion, although this was largely due to positive foreign exchange effects – on an adjusted basis, revenue was up just 0.8%. Divisional EBIT fell 37.6% to €53 million, primarily due to “restructuring costs supporting our ‘Focus. Connect. Grow” strategic initiatives.” DP-DHL seemed more comfortable with the situation in Supply Chain than in Global Forwarding, pointing out that there had been a “sound order intake in Q1 (€260 million), especially in Automotive, Consumer and Life Sciences & Healthcare.”



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