DHL Owner Deutsche Post Expects Limited Earnings Growth This Year — Update

By Dominic Chopping

DHL owner Deutsche Post cautioned that earnings could remain relatively flat this year as economic headwinds weigh on volumes through the first half.

The gloomier outlook disappointed investors, sending shares 5.1% lower to EUR39.56 in early trade.

The German logistics group, also known as DHL Group, doesn't expect to see a broad economic upturn in the first half of 2024 and expects volumes to decline further in some markets before global economic momentum picks up in the second half of the year.

"The year 2023 was characterized by a weak global economy and, above all, weak global trade," Chief Executive Tobias Meyer said. "Major uncertainty factors such as volatility in demand and geopolitical crises will remain with us in 2024."

Logistics providers saw earnings surge in 2022 as strained supply chains sent freight rates soaring. But conditions normalized in 2023 as inflation and higher interest rates saw consumer demand wane while easing supply chains saw freight markets swing to overcapacity, pressuring freight rates.

Deutsche Post said the weak market environment experienced last year, with lower business-to-business volumes driven by ongoing destocking by customers and a weak economic environment, has continued into 2024, so earnings are expected to decline in the first half before growing in the second half.

The company expects earnings before interest and taxes in 2024 of between 6 billion and 6.6 billion euros ($6.52 billion-$7.17 billion), rising to EUR7.5 billion-EUR8.5 billion in 2026.

It posted EBIT of EUR6.35 billion for 2023 and a company-compiled consensus had seen EBIT in 2024 at EUR6.6 billion--the top-end of its new guidance.

Analysts at Deutsche Bank noted that the lack of any sign of a recovery in the business-to-business market and inventory re-stocking by customers is disappointing.

"The stock... will re-rate quickly ahead of any restocking but the issue is that there are no green shoots of that happening," the analysts said in a note.

However, positives to draw out are a confident tone on free cash flow, an increase in the buyback and confirmation that it hasn't participated in the DB Schenker bid process, analysts at Barclays said in a note.

Deutsche Bahn has launched a sale process for its DB Schenker logistics subsidiary and it wasn't known if Deutsche Post would bid. Executives confirmed Wednesday that the deal wouldn't be a good fit so it hasn't submitted any sign of interest in the deal, preferring instead to focus any acquisitions in areas such as ecommerce.

The decision not to bid for DB Schenker "will be taken well and potentially remove overhang risk from the shares," Barclays said.

Deutsche Post said net profit fell to EUR981 million in the final quarter of 2023 from EUR1.34 billion a year before while revenue fell 10% to EUR21.35 billion.

Analysts expected Deutsche Post to report a fourth-quarter net profit of EUR1.05 billion on revenue of EUR21.3 billion, according to company-compiled consensus.

The company maintained its dividend at EUR1.85 a share, while extending its buyback to 2025 and increasing it by EUR1 billion to EUR4.0 billion.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

March 06, 2024 05:02 ET (10:02 GMT)

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