Deutsche Post saw revenues rose 4.1% in the first quarter to EUR15.4bn, boosted by EUR211m of positive currency movements. Operating profit rose 28.1% to EUR1.2bn following the disposal of the group's Chinese Supply Chain business for EUR653m.
Management remain cautious about the outlook for global growth.
The results were generally in line with market expectations, and full year guidance remains unchanged, with the shares broadly flat in early trading.
Deutsche Post's got a dominant position in the German postal market - delivering some 63% of all letters and 45% of parcels. But with the division accounted for just 20% of group profits last year. It's the global parcels and logistics business that really sets it apart.
DHL Express is the world's largest provider of premium cross-border parcel and document delivery services, and it's 'Time Definite' product has been outperforming the wider parcels business. Deutsche Post's other divisions provide additional parcel, freight brokerage and outsourced logistics services in hundreds of countries around the world.
A global footprint has meant Deutsche Post has been a major beneficiary of increasing global trade and outsized exposure to Germany, one of Europe's strongest economies, has also been a tailwind. Underlying all this is the continued growth in online shopping - which remains a key driver of parcel volumes.
However, you only need to look at the damage the last financial crisis did to revenues - down 14% in 2008 and 15% more in 2009 - to see how damaging an economic slowdown can be. That makes recent warnings about a slowing global economy, particularly in Germany - which has been bordering on economic stagnation - a worry for investors. With letters in long-term decline, the group can ill afford for parcels to take a turn for the worse as well.
That goes a long way towards explaining why the shares trade on a PE ratio of 12.7 times (a 9% discount to their recent average)
It's not all doom a gloom however. For now, revenues continue to climb, and Deutsche Post has weathered tough times before. The balance sheet doesn't look overstretched and with the stock currently offering a prospective yield of 4.2%, investors should at least be paid to wait out any economic turbulence.
Deutsche Post should emerge from any economic downturn with its attractive market positions broadly unchanged, and with the possibility of a modest re-rating on the cards, we think there are worse homes for a long-term investor prepared to stomach some volatility.
First Quarter Results
Revenue rose 0.7% in the Post & Parcel Germany division to EUR3.8bn, as a strong results in parcels more than offset the decline in letter volumes. The parcels business continues to benefit from the growth of Deutsche Post's e-commerce division. However, operating profits in the division fell 44% to EUR227m as material and labour costs increased, including the effect of collective wage increases.
Deutsche Post's Express division, which covers international parcels, saw revenues rise 5.3% to EUR4bn, with growth across all regions. Excluding currency and fuel effects, revenue rose 2.3%. The group's 'Time Definite' offer continued to outperform the wider group. Operating profits in the division fell 1.7% to EUR453m, reflecting changes in mix and foreign currency losses.
The Global Forwarding, Freight division saw revenues rise 3.9%, excluding currency movements. Improved margins in air freight, together with ongoing cost control saw operating profits rise 42.9% to EUR100m.
The Supply Chain business saw revenues rise 4.6% to EUR3.3bn, with operating profits rising from EUR55m this time last year to EUR486m following the sale of the group's Chinese business. Ecommerce Solutions revenues rose 8.9% to EUR999m, although losses doubled to EUR28m.
Capital expenditure rose 29.1% to EUR1bn, with a particular focus on Express. Free cash remained negative, at -EUR256m, but improved year-on-year following the Chinese disposal.
Net debt rose 1.7% year-on-year to EUR12.5bn.
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