Deutsche Post DHL Q3 profits rise across the board

Deutsche Post DHL Group profits soared in the third quarter of 2019 as all five divisions reported growth in revenues and operating profits, including higher average parcel prices.

The group increased revenue by 4.7% to €15.6 billion in the July – September quarter, while operating profit improved from €376 million to €942 million. This was an underlying improvement of 23%, when excluding the previous year’s negative impact of €392 million from non-recurring expenses at Post & Parcel Germany.

"We had a very good third quarter. All five divisions performed well despite the challenging global economic environment. Thanks to our broad portfolio and the market-leading position of our divisions, we are growing even in uncertain times,” CEO Frank Appel said in a statement. “For the fourth quarter, we anticipate a traditionally strong holiday season and we reaffirm our guidance for the full year 2019.”

DHL Express improves profits despite slower volume growth

The biggest profit contributor was DHL Express, which increased its operating profits by 11% to €454 million and slightly improved its profit margin to 10.7% in the quarter thanks to higher volumes and strict yield management. Express revenues climbed 8.7% to €4,247 million as its main product, Time Definite International (TDI), generated a 5.9% rise in volumes and a 5.6% rise in revenue on an average daily basis. Lower-priced Time Definite Domestic (TDD) volumes increased by 8.8%, generating a 9.8% revenue increase.

However, DHL Express is clearly seeing slower growth this year. Over the first nine months of 2019, DHL Express had low single-digit growth in B2B shipments compared to mid-single-digit increases between 2015 and 2018, while B2C growth has halved to about 10%, but on a bigger basis.

CFO Melanie Kreis told journalists and analysts on separate calls: “TDI volume growth remains very solid as growth in premium B2C balances slower growth in B2B due to macro uncertainties.” But she emphasised that DHL Express continues to be “extremely selective” about B2C volumes to maintain profit margins and is focusing on “growth at the right price”.

Meanwhile, all geographical regions contributed to the quarterly growth, the group results showed. In Europe, DHL Express increased quarterly revenues by 7.7% to €1,858 million as average daily TDI volumes grew by 7.6% and revenues by 4.5% respectively, largely thanks to B2C growth. The Americas generated strong revenue growth of 12.2% to €911 million on a 7.6% rise in TDI daily revenues and 6.1% increase in volumes.

In Asia Pacific, quarterly revenues grew by 10.1% to €1,525 million, with per-day TDI revenues up by 5.8% and volumes by 5.7%. Revenues in the Middle East and Africa region rose by 10.5% to €306 million. Daily TDI revenues grew by 3% even though volumes dropped by 5.9% as the company cut back on low-price B2C business in the region.

Higher average prices at DHL Parcel Germany

The biggest financial turnaround was in the Post & Parcel Germany division which reported an operating profit of €304 million compared to a €202 million loss in the same quarter last year. Excluding the non-recurring restructuring expenses of €392 million in Q3, 2018, this was still a strong improvement of €114 million. The financial turnaround resulted from a combination of higher mail and parcel prices, good parcel volume growth and lower indirect costs which offset higher costs for personnel, transport and materials, according to the group.

Post & Parcel Germany increased quarterly revenues by 5.5% to €3.7 billion in the third quarter of 2019. Mail revenue was up 3.1% to €2.34 billion despite a slight volume decline on account of the 10.6% average postage rate increase in July. DHL Parcel Germany increased revenues by 9.9% to €1.43 billion as volumes grew by 6.1% to 368 million in the July – September quarter.

Kreis said the parcel business had successfully implemented price increases, leading to higher average prices, while also increasing its market share. “That has worked better than we anticipated,” she commented. In future, however, DHL Parcel wants to move towards annual price increases to compensate for rising costs, like the Express business, she added.

The group CFO also pointed out that DHL Parcel Germany is growing in all customer segments and ahead of the market. Over the first nine months of 2019, the business increased revenues by 10% to €4.3 billion compared to market growth of about 6.8%. Revenues from the 340 top accounts grew by 9% to about €1.6 billion, from some 17,000 medium accounts by 13% to €1.5 billion, and from an estimated 82,000 small customers by 10% to about €300 million, according to a presentation slide.

Asked about expectations for the current peak season, Kreis said daily parcel volumes are likely to more than double to 11 million compared to normal levels during the year but also cautioned that DHL Parcel would need to keep a close eye on the “much higher” operational costs for additional personnel and capacity. She commented that DHL wanted to have “very close collaboration” with major customers and “the best possible volume forecasts” during peak season.

DHL eCommerce Solutions makes first profit

DHL eCommerce Solutions, which groups the international parcel businesses in Europe and overseas, achieved an important milestone in the third quarter making its first-ever profit following its separation from the German Post and Parcel business at the beginning of this year.

The division reported a low operating profit of €6 million compared to a €7 million loss in the same period last year. Its revenue grew by 5.4% to €964 million with growth in all regions and particularly strong performances in the USA, Netherlands and Poland.

Kreis said the division is likely to report a loss again in the fourth quarter due to forthcoming restructuring measures but otherwise the group expects an upwards earning trend in the coming quarters.

Better freight forwarding and supply chain results

Meanwhile, in a challenging market environment, the Global Forwarding, Freight division posted a year-on-year revenue increase of 0.9% to €3.7 billion in the third quarter. As in the second quarter, the global air freight market remained weak, while the ocean freight and overland freight transport markets also lost momentum in the third quarter. However, the division succeeded in markedly improving profitability thanks to the consistent implementation of cost-efficiency measures. Operating profit surged by 17% compared with the prior-year period to reach €124 million in the third quarter.

The Supply Chain division also performed better with Q3 revenue up by 2.3% to €3.3 billion, despite the sale of the Chinese operations to S.F. Holding in the first quarter of 2019, and its operating profit by 5.9% to €162 million. The operating margin stood at 4.8% and was thus already at the upper end of the corridor of 4.0% to 5.0% targeted for 2020.

In terms of its financial targets for 2019 as a whole, Deutsche Post DHL Group continues to expect to increase operating profit to between €4.0 and €4.3 billion, with €3.4 to €3.5 billion from the DHL divisions and €1.1 and €1.3 billion from Post & Parcel Germany.