German Post DHL Group Anticipates Stagnant Profits Due to Economic Headwinds
The German Post DHL Group is looking at a year with anticipated stagnant profits due to economic headwinds. Following the release of their financial results, the company announced that it would not participate in the bidding competition for rival DB Schenker. The caution in the forecast for the current year caused shares to drop by 6.3% to 39.07 euros on Wednesday. The German logistics giant does not expect a broad economic recovery in the first half of 2024 and foresees a further decline in volumes in some markets before a global economic upswing begins in the second half of the year.
"The year 2023 was characterized by a weak global economy and especially a weak global trade," said CEO Tobias Meyer. "Major uncertainties such as demand fluctuations and geopolitical crises will also accompany us in 2024." Logistics service providers recorded a surge in profits in 2022 as strained supply chains drove freight rates up. However, with the normalization of conditions in 2023, caused by inflation and rising interest rates that dampened consumer demand, as well as a relaxation of supply chains leading to overcapacity in freight markets, freight rates came under pressure.
Deutsche Post expects a decline in earnings for the first half of 2024 before growth sets in the second half. The company forecasts an Earnings Before Interest and Taxes (EBIT) for 2024 between 6 billion and 6.6 billion euros ($6.52 billion and $7.17 billion), which is expected to increase to between 7.5 billion and 8.5 billion euros by 2026. An EBIT of 6.35 billion euros was recorded for 2023, while analysts had expected an EBIT for 2024 of 6.6 billion euros – at the upper end of the new forecast.
Deutsche Bank analysts noted that the absence of any signs of recovery in the business-to-business market and inventory replenishment by customers is disappointing. "The stock ... will be quickly revalued before any inventory replenishment occurs, but the problem is that there are no signs of this," the analysts said in a note.
German Post confirmed after the release of its results on Wednesday that it will not participate in the bidding competition for rival DB Schenker, as the business is 'not the right target.' 'It does not correspond to the value creation we are looking for,' said Meyer in a teleconference about the results. The German Railways, Germany's state-owned railway and logistics operator, had initiated a sales process for its logistics subsidiary DB Schenker, the world's fourth-largest freight forwarder by revenue, at the end of last year.
Barclays analysts said in a note on Wednesday that a decision by DHL not to bid for DB Schenker would be "well received and could potentially remove the risk of an overhang from the shares." Deutsche Post reported a decline in net profit in the last quarter of 2023 to 981 million euros from 1.34 billion euros the previous year, while revenues fell by 10% to 21.35 billion euros. Analysts had expected a net profit of 1.05 billion euros on revenues of 21.3 billion euros. The company held its dividend at 1.85 euros per share and expanded its buyback program to 4 billion euros by 2025, up by 1 billion euros.
