UPDATE 2-Deutsche Post outlook improves as Asia strategy pays off

Tue Aug 6, 2013 7:35am EDT

* Q2 revenue 13.649 bln eur vs Rtrs poll 14.058 bln eur

* Q2 EBIT 619 mln eur vs Rtrs poll 620 mln eur

* Hikes full-year EBIT profit outlook by 50 mln eur

* Cites release of last year's provision at mail

* Shares up 2.8 pct vs flat blue chips board

By Marilyn Gerlach

FRANKFURT, Aug 6 (Reuters) - Deutsche Post's strategy of investing in Asia paid off in the second quarter as it gained market share in its express delivery business, offsetting losses from cost-conscious customers switching to cheaper shipping options.

The world's largest postal and logistics company by revenue reported a 14 percent rise in operating profit that was in line with expectations and raised its guidance for the whole of 2013 by 50 million euros to 2.75-3.0 billion euros.

Revenues from ocean-going and air freight were both driven lower by falling prices, but the improved overall forecast prompted a rise in its share price and contrasted with a profit warning issued last month by rival United Parcel Service .

Chief Financial Officer Larry Rosen said that the change in guidance was a "technical matter" of reversing a loss provision in its mail business but also reflected improvement in the Express business in small, fast international deliveries for corporate clients.

"Overall we think were doing quite well," he told reporters. "We're probably gaining some share in the Express business. We've invested in the right places. We're very well positioned in emerging markets."

Deutsche Post's international arm DHL - comprising express, freight forwarding and supply chain - has a dominant market position in the Asia-Pacific region, and while macroeconomic trends in China are weakening, intra-Asian trade flows are still healthy, benefiting the express market there.

UPS, whose package delivery business is bigger than Deutsche Post's, has been hurt by a weaker than expected outlook for the second-half in the United States, where the German company has little exposure.

Deutsche Post also still owns Germany's post office network and has about 80 percent of the domestic mail market in Europe's biggest economy. Profits from that business, which includes booming deliveries for online retailers, rose to 223 million euros from 38 million euros a year earlier, largely due to the absence of a one-off payment for value-added tax.

ASIA EXPRESS

DHL, already the leader in Asia with around a third of the market, opened a 143 million euro hub in Shanghai last year to move goods flowing to Northern Asia quickly.

China alone makes up half of the DHL group's revenues and the new hub was part of a plan to raise the Asia-Pacific region's share of DHL group sales to 30 percent by 2017 from just under 20 percent in 2012.

The Express business worldwide saw organic growth - stripping out the impact of some operating units it has now sold - of 4 percent. Its revenues in Asia-Pacific were 2.1 billion euros in the first-half, implying a figure of around 1.1 billion in the second quarter.

"The Express business is well positioned, and it seems that clients are still prepared to pay if they want something delivered the following day," said analyst Dirk Schlamp of DZ Bank.

Deutsche Post revenues overall in the second quarter, however, were a touch below forecasts at 13.649 billion and Rosen said the freight market was still suffering from five years of economic turmoil.

Second quarter revenues from air freight fell 11.6 percent, due to a decline in demand from customers in technology, engineering and manufacturing sectors, the company said. Ocean freight revenue also fell, but at a slower rate of 5.6 percent.

"There are fewer volumes to transport and this has led to a price war," said Schlamp.

By contrast industry data from China cited by investment bank Morgan Stanley shows volumes in the international Chinese express market were up 48 percent year-on-year in the second quarter.

At 0837 GMT shares in Deutsche Post rose 2.8 percent to 21.93 euros, outperforming a flat blue chip index.

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