Deutsche Post DHL's Demand and Yield Outlook Healthy, Though We Expect Some Normalization

Deutsche Post DHL is the leading postal operator in Europe, among the top three international express package carriers, and the world's largest air and ocean forwarder. Its legacy German postal operations (about 12% of total revenue) face secular demand declines and are heavily regulated. However, we expect growth in the DHL segments and momentum in the German (and international-domestic) parcel delivery operations to continue to comfortably offset declines in traditional mail-related activity in the long run. DHL Express is well positioned in international and intercontinental express parcel markets that touch Europe and North America, and its global air and ocean forwarding unit is benefiting from successful IT reorganization efforts, including rising process automation. Additionally, heavy network investment and aggressive efficiency initiatives in years past have been supporting solid margin expansion and market share gains at Express. The coronavirus-driven spike in business-to-consumer parcel delivery demand helped propel Express' margins to new highs, and although growth comparisons have become difficult for B2C shipments, underlying e-commerce tailwinds should remain healthy through 2022.