UPDATE 2-Deutsche Post profit curbed by cheaper shipping, currency swings

Thu May 15, 2014 7:07am EDT

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By Marilyn Gerlach

FRANKFURT, May 15 (Reuters) - Deutsche Post unveiled a lower-than-expected increase in first-quarter operating profit, as its DHL unit was hurt by customers swapping to cheaper shipping deliveries and by currency swings in emerging markets where it has a big presence.

Overall, freight volumes rose thanks to a recovery of the European and U.S. economies, but operating profit missed analyst estimates of 745 million and came in up 2.3 percent at 726 million euros ($995.38 million).

The world No. 1 postal and logistics group said revenue was up 1.2 percent to 13.569 billion euros, below the 13,605 billion average estimate in a Reuters poll. It took a 461 million euro hit from swings in currencies in parts of Asia and Russia resulting from slowing economies and political turmoil.

Shares fell 3.5 percent by mid-morning, making it the biggest decliners on Frankfurt's blue chip board.

Dutch rival TNT Express, which leads the intra-Europe express market, reported profit recovery in core European segments as well as Asia, Middle East & Africa, but also said revenues fell - by 6.6 percent in the first quarter - owing to the impact of foreign exchange moves.

Chief Finance Officer Larry Rosen told reporters Deutsche Post was sticking to its 2014 forecast for higher earnings, banking on "good" growth at DHL - comprising Express, Global Forwarding and Supply Chain divisions - despite a 1 percent decline in quarterly operating profit to 408 million euros.

Operating profit at the Express unit rose 14.1 percent to 275 million euros, as deliveries of documents and parcels within a 24-hour-period rose in Asia-Pacific, the Americas and Europe.

FORWARDING STUMBLES

Global Forwarding operating profit declined by about 45 percent to 48 million euros due to weaker currencies against the euro and lower prices. Forwarders buy cargo space from airlines, shippers and truckers and bundle shipments for customers, such as carmakers, high-tech firms and agriculture firms.

Deutsche Post said reduced freight capacities among airlines had put pressure on rates. Air freight volumes were flat but ocean freight volumes rose 4.7 percent largely on new business, with exports from Europe stable and demand on the north-south routes increasing amidst stable rates.

It said spot market rates were declining on the east-west trade lanes, echoing comments from Swiss rival Kuehne and Nagel whose executives told analysts last month that while rates for the North Atlantic trade lanes were rising, the Latin America and Far East bound lanes were weaker.

Analyst Stephen Furlong of Davy Research said volumes in air freight had some improvement toward the end of the quarter, but demand in the technology, engineering and manufacturing sectors was weak.

He noted also that Supply Chain, which saw a 1.2 percent rise in operating profit, had benefited from strong gains in emerging markets as well as in the life sciences, healthcare and automotive sectors.

Deutsche Post said it continued to expect an EBIT increase to between 2.9 billion euros and 3.1 billion this year compared with 2.862 billion last year.

($1 = 0.7294 Euros) (Reporting by Marilyn Gerlach; Editing by Sophie Walker)

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