DHL Earnings: Global Package Demand Challenged But Stabilizing

Narrow-moat Deutsche Post DHL’s second quarter top-line was down 14% (organically) year over year, modestly below our expected run rate. Relative to the same period last year, lower revenue stems in part from retail-sector destocking and sluggish industrial end markets, and as global air and ocean forwarding demand and rates continue to correct off previously strong levels (especially on trade routes from China). On the positive side, overall express and forwarding volume trends appear to be stabilizing as the current normalization phase works through, and organic supply chain revenue was up about 5%, with help from healthy new business wins.

Consolidated EBIT margin fell 130 basis points to 8.4%, but came in ahead of our expected run rate on outperformance in most segments except for post and parcel, which is grappling with noise from union related wage inflation. The lower consolidated margin stems from lost volume related leverage, along with meaningful wage and cost inflation, though the firm seems to be executing well in terms of adjusting the network to sluggish volumes.

Macroeconomic risk remains elevated, but management raised the bottom end of its 2023 guidance slightly , calling for group-EBIT of EUR 6.2-7.0 billion (previously EUR 6.0-7.0 billion). This compares with roughly EUR 8.4 billion in 2022. We maintain our DCF-derived EUR 42 fair value.