Deutsche Post hit by weak DHL Express US prospects

Deutsche Post, the German postal and logistics group, forecast flat operating profit for 2006 on Tuesday and gave a weak oulook for its DHL express division that sent shares sliding. The group said it expected 2006 operating profit at the express division to be unchanged from 2005, before an impairment loss on goodwill that brought the divisions profit down to just 11m last year. Shares fell 4.9 per cent to 21.65. Deutsche Post has grown through acquisitions, including of DHL and Airborne in 2002, to be the worlds largest logistics company. But it faces tough competition in the US from dominant rivals FedEx and UPS, and last month abandoned a target for DHLs US package delivery business to break even by the end of the year.

Deutsche Post sees more losses in US parcels DHL
Financial Times UK, London Ed1, Sec. COMPANIES EUROPE, p 28 03-15-2006
By By RICHARD MILNE
BONN
Deutsche Post, Europe’s largest postal group, yesterday forecast several years of continuing losses at its DHL parcels business in the US, causing it to issue conservative guidance for 2006.

Klaus Zumwinkel, chief executive of the German group, said the problematic US division would continue to lose money this year, when its losses would be similar to last year’s Euros 400m (Dollars 481m), as well as in 2007, though they should be reduced next year.

He refused to say when the division, essentially created by DHL’s takeover of Airborne in 2003, would break even after the group last month abandoned its target to do so by the end of this year. Concern over the integration problems for DHL in the US, France and the UK, where results were also below expectations, led to a large sell-off in the shares, which ended down almost 7 per cent at Euros 21.16.

Mr Zumwinkel said Deutsche Post, after years of expansion to offset the fall in profitability likely when its German postal monopoly ends in 2009, planned no large purchases in the coming years.

The costs of further integration in the US alongside expenses of about Euros 280m in 2006 from its Pounds 3.8bn (Dollars 6.6bn) acquisition last year of Exel, the UK logistics company, mean Deutsche Post is targeting an operating profit this year of at least Euros 3.7bn, slightly below 2005’s Euros 3.76bn.

Despite the inclusion for the first time of Exel, which analysts estimated made Euros 312m last year, the German group has to overcome not only increasing competition in its home market before its monopoly ends but also non-recurring gains from 2005 of about Euros 400m.

Mr Zumwinkel justified the decision no longer to publish individual results for DHL’s US division by saying competitors were using the poor figures to steal business away from Deutsche Post. “We have nothing to hide. It was just we had to weigh up transparency against damage to the business,” he said.

A global logistics company had to be represented in the US although he admitted Deutsche Post, with a market share of about 7 per cent there, would never earn as good a margin as rivals such as FedEx and UPS.