August 6, 2019 / 5:28 AM / 15 days ago

Deutsche Post raises 2019 forecast after price hikes

BERLIN (Reuters) - Deutsche Post DHL (DPWGn.DE) said on Tuesday it expects restructuring measures and increases in German postage and parcel prices to lift earnings in the second half of 2019, despite rising global trade tensions.

FILE PHOTO - A distribution centre of German postal and logistics group Deutsche Post DHL is pictured in Obertshausen, Germany June 15, 2016. REUTERS/Ralph Orlowski

The partly state-owned German post and logistics group said full-year operating profit should rise to between 4.0 billion and 4.3 billion euros, up from a previous estimate of between 3.9 billion and 4.3 billion euros, due to higher expectations for its German Post & Parcel (P&P) division.

It also confirmed its guidance for full-year operating profit to reach more than 5 billion euros in 2020, something finance chief Melanie Kreis said the company wants to reach without one-off effects.

Shares in Deutsche Post were up 4.5% at 1021 GMT.

“We expect (Deutsche Post) to profit further from the ongoing ecommerce boom, price increases and internal optimisation,” said Christian Obst, an analyst at Baader bank, who rates the stock a “buy”.

The company said steps taken to improve productivity and an increase in the German postage rate for letters from July 1 would help in the second half of the year, despite trade conflicts denting global economic growth.

Deutsche Post is not immune to slowing momentum in global trade - it reported a 5.8% fall in air freight volumes in the second quarter - but it is shielded by a broad portfolio, Kreis told journalists.

U.S. rival FedEx Corp warned in June that U.S.-China trade tensions and the non-renewal of its contract with Amazon.com Inc (AMZN.O) would hurt its fiscal 2020 performance.

ECOMMERCE BOOM

While letter shipments are in long-term decline, Deutsche Post has enjoyed a boom in parcel volumes thanks to the rapid growth of ecommerce.

But costs have risen as low unemployment makes it harder to find drivers and Germany has increased a toll on trucks, prompting the company to say last month it will hike parcel prices for business customers.

Kreis is not concerned that price rises will drive away ecommerce giants like Zalando (ZALG.DE) or Amazon (AMZN.O), noting that competitors also face similar cost pressures as few delivery staff will work for the minimum wage.

“We are not as dependent on one or two customers as it may sometimes seem,” she told analysts. “Of course, we love working with the big ecommerce players but you also have a very broad customer portfolio below the big players.”

German regulators agreed that Deutsche Post could increase letter prices by 10.63% in return for the company pledging to hire an extra 5,000 delivery workers.

The company reported a 3% rise in second-quarter sales to 15.5 billion euros ($17.37 billion), while operating profit rose by 2.9% to 769 million euros, topping the 727 million average forecast from analysts.

Earnings at the P&P division, which accounts for almost a quarter of sales, turned positive for the first time since the fourth quarter of 2017.

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That was counterbalanced by restructuring costs at its supply chain and ecommerce solutions units, the company said.

Kreis said Deutsche Post was looking for additional savings in the second half of the year but should be able to offset extra restructuring costs with positive pension evaluation effects.

United Parcel Service Inc (UPS.N) said last month a jump in demand for its Next Day Air service drove better-than-expected profit in the second quarter as large retailers rushed packages to online shoppers.

Additional reporting by Vera Eckert in Frankfurt and Matthias Inverardi in Duesseldorf; editing by Michelle Martin, Jason Neely and Kirsten Donovan

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