Deutsche Post Profit Falls 11 pct on DHL U.S., Postbank

Deutsche Post AG , said second-quarter profit fell 11 percent on costs to revamp the DHL Express division’s U.S. unit and after writedowns hurt earnings at Deutsche Postbank AG.
Net income fell to 254 million euros (USD 396 million), or 21 cents a share, from 285 million euros, or 24 cents, a year earlier, Bonn-based Deutsche Post said in a statement. Sales rose 5 percent to 16.2 billion euros.
Chief Executive Officer Frank Appel forecast in May that the DHL U.S. express-delivery unit will suffer a loss of USD 1.3 billion this year as a slowing U.S. economy hurts demand for air shipments and the business struggles to compete with United Parcel Service Inc. and FedEx Corp. Postbank, also based in Bonn, yesterday 30th July reported a 21 percent drop in second-quarter profit because of writedowns on debt-related investments.
Deutsche Post announced plans in May to limit losses at the U.S. express-delivery operations by shrinking the network, firing workers and transferring air deliveries to Atlanta-based UPS. The revamp will cost the mail carrier USD 2 billion through 2009, it forecast at the time. Deutsche Post said today the unit’s reorganization is “on track” and that talks with UPS over a final contract are making progress.
Postbank, of which Deutsche Post owns 50 percent plus one share, said yesterday that second-quarter net income fell to 119 million euros from 151 million euros a year earlier after writing down the value of securities by 143 million euros. The quarter’s markdowns bring Postbank’s total losses related to the U.S. subprime-mortgage-market collapse to 429 million euros.
Appel said in a statement today that the mail carrier is having discussions with “various potential partners” on the bank’s future. Deutsche Post announced June 25 it’s holding “exploratory” talks about a sale of Postbank as the company focuses on mail, express deliveries and logistics.
Postbank may fetch 9 billion euros to 11 billion euros, Carsten Werle, an analyst at Sal. Oppenheim in Frankfurt, wrote to investors this month. The bank has a market value of about 7.6 billion euros after the stock dropped 23 percent this year.
Reorganization Cost
Reorganizing the U.S. express-delivery business cost the postal service 47 million euros in the quarter. Earnings before interest and taxes at the Express unit dropped 52 percent to 31 million euros. The division is facing a “weakening economic environment” in the U.S., with customers switching to cheaper delivery options, echoing statements from competitors such as UPS.
“Ever since I took office as chairman of the board of management last February, I have been emphasizing the fact that the express business in the USA is at the very top of my list of priorities,” Appel said in the statement.
Deutsche Post today stuck to a full-year target that earnings before interest and taxes, excluding one-time costs or gains, will reach 4.1 billion euros, provided there is no “significant worsening” of the global economy. The company announced last week that second-quarter revenue increased about 4 percent, though it didn’t provide a total figure.
The postal operator expects to raise dividends “broadly in line with underlying earnings in coming years,” it said today. That corresponds to an average annual increase of about 10 percent, Deutsche Post added.