(Reuters) - Strong growth at its European parcels business helped Britain’s Royal Mail (RMG.L) to beat first-half profit forecasts, boosting its shares as much as 4.6 percent on Thursday, though it warned an ongoing labour dispute could hit its second-half performance.
Adjusted pretax profit dipped to 250 million pounds for the 26 weeks to Sept. 24, from 252 million pounds, a year earlier, the postal and parcel delivery company said.
Three analysts said that beat expectations.
Royal Mail, which has been in a row with the Communications Workers Union (CWU) over plans to replace the company’s defined benefit pension scheme, said revenue rose 2 percent to 4.83 billion pounds, helped by its European parcels business.
Revenue at UKPIL, which comprises Royal Mail’s core UK and international parcels and letters delivery businesses, was broadly unchanged at 3.62 billion pounds.
GLS, the European parcels business, which covers 41 European markets, saw revenue jump to 1.20 billion pounds from 942 million pounds.
“The results were ahead of our forecasts, with an encouraging revenue performance in Parcels and ongoing outperformance at GLS,” said Liberum analyst Gerald Khoo, who rates Royal Mail stock a “sell”.
Royal Mail said it faced increased cost pressures in the second half, including the “potential impact of the industrial relations environment on the pace of change”.
The company has been trying to cut costs to boost profit as more people move to online platforms to communicate.
“Management has struck a cautious tone on the outlook for costs in H2. Even if Parcels revenue strength can be extrapolated into the long term, which is by no means certain given ongoing competition, cost savings and productivity improvements are still needed,” Khoo added.
Royal Mail, which was privatised in 2013, is trying to modernise after years of underinvestment and has taken steps such as reducing layers of management, upgrading its technology and selling off property.
Uncertainty over the outcome of pensions negotiations have long held back Royal Mail’s stock, which have lost about a fifth of its value in the last year. The shares were up 1.8 percent at 396.1 pence at 0839 GMT.
Reporting by Noor Zainab Hussain and Arathy S Nair in Bengaluru, Additional reporting by Samantha Kareen Nair; Editing by Jason Neely and Mark Potter