Deutsche Post plans EUR 600 million writedown in U.S.
Deutsche Post AG said it will write down the value of its DHL Express unit’s Americas division as it struggles to compete with United Parcel Service Inc. and FedEx Corp.
Deutsche Post will write down 600 million euros (USD 874 million) of assets such as aircraft, trucks and office equipment, reducing 2007 net income, Chief Financial Officer John Allan said on a conference call. The move won’t affect Deutsche Post’s plans to raise the dividend by 20 percent, he said.
Deutsche Post last year scrapped a 2009 deadline for DHL to break even in the Americas, and some investors have called for the Bonn-based company to shed the unit. The carrier’s willingness to keep the business on its books suggests it plans to stay in the U.S. market, said Tim Sailor, principal of Navigo Consulting Group, a Long Beach, California-based firm that advises parcel shippers.
The decision will disappoint investors who want DHL to sell the unit, Damian Brewer, an analyst at JPMorgan Chase & Co. in London, said in a note to clients.
The postal service bought the business in 2002 to expand its express-parcel delivery network and compete with Atlanta-based UPS and Memphis, Tennessee-based FedEx in their home market.
Deutsche Post yesterday reiterated plans for a 2007 dividend of 90 euro cents a share.
The postal service will contract with other companies to handle some information-technology operations, leading to savings of at least 1 billion euros over seven years, Allan said today. Details of the plan, including the contractor, will be released tomorrow.
Deutsche Post announced plans last November to raise at least 1 billion euros from the sale of property to raise cash and attract investors. The postal service has generated more than 350 million euros of that amount so far, Allan said.
Shares fell 0.86 euro to 20.22 euros in German trading. UPS rose 5.6 percent today in New York trading, the most in more than six years, while FedEx climbed 4.8 percent, the most since September 2005.
Deutsche Post AG said it will write down the value of its DHL Express unit’s Americas division as it struggles to compete with United Parcel Service Inc. and FedEx Corp.
Deutsche Post will write down 600 million euros (USD 874 million) of assets such as aircraft, trucks and office equipment, reducing 2007 net income, Chief Financial Officer John Allan said on a conference call. The move won’t affect Deutsche Post’s plans to raise the dividend by 20 percent, he said.
Deutsche Post last year scrapped a 2009 deadline for DHL to break even in the Americas, and some investors have called for the Bonn-based company to shed the unit. The carrier’s willingness to keep the business on its books suggests it plans to stay in the U.S. market, said Tim Sailor, principal of Navigo Consulting Group, a Long Beach, California-based firm that advises parcel shippers.
The decision will disappoint investors who want DHL to sell the unit, Damian Brewer, an analyst at JPMorgan Chase & Co. in London, said in a note to clients.
The postal service bought the business in 2002 to expand its express-parcel delivery network and compete with Atlanta-based UPS and Memphis, Tennessee-based FedEx in their home market.
UPS and FedEx
UPS, the world’s largest package shipper, has been boosting international revenue at a faster rate than in the U.S., where the economic expansion is cooling amid slowdowns in housing and consumer spending.
Andrew Beh, a London-based analyst at Bear Stearns Cos., told investors in a note last month that Deutsche Post should leave the U.S. domestic parcel-shipping market after losing almost USD3 billion over five years, because it has little hope of making a profit from the business at least through 2012.
“We are determined to improve our performance and we’re also absolutely committed to retaining a significant presence in the U.S.,” Allan said.
Allan declined to say what measures may be taken to improve the U.S. express-delivery unit’s performance, or when any moves may be announced. It’s too early to assess the effect of slowing economic growth on the business this year, though all divisions met their 2007 targets, Allan said.
Dividend Plans
The carrier’s earnings before interest and taxes last year, excluding one-time gains or costs, were “in line” with Deutsche Post’s forecast of about 3.7 billion euros. Earnings on that basis will rise to about 4.2 billion euros in 2008, the company said in a statement today, sticking to earlier targets.
Deutsche Post yesterday reiterated plans for a 2007 dividend of 90 euro cents a share.
The postal service will contract with other companies to handle some information-technology operations, leading to savings of at least 1 billion euros over seven years, Allan said today. Details of the plan, including the contractor, will be released tomorrow.
Deutsche Post announced plans last November to raise at least 1 billion euros from the sale of property to raise cash and attract investors. The postal service has generated more than 350 million euros of that amount so far, Allan said.
Shares fell 0.86 euro to 20.22 euros in German trading. UPS rose 5.6 percent today in New York trading, the most in more than six years, while FedEx climbed 4.8 percent, the most since September 2005.
