U.S. Markets closed

Deutsche Post warns parcel restructuring will hit profit

A postman of German mail services Deutsche Post AG delivers mail in Hanau, Germany, June 2, 2018. REUTERS/Kai Pfaffenbach

By Maria Sheahan and Ludwig Burger

FRANKFURT (Reuters) - Deutsche Post DHL (DPWGn.DE) set out plans to restructure its post and parcel delivery division to better cope with rising staff and transport costs and slashed its 2018 operating profit forecast by almost a quarter, sending its shares sharply lower.

The German postal and logistics group will cut costs and invest in higher productivity at its Post - eCommerce - Parcel (PeP) division to reach its 2020 target of group earnings before interest and tax (EBIT) of more than 5 billion euros (4.4 billion pounds).

For 2018, it now sees group EBIT at 3.2 billion euros, down from a previous forecast for 4.2 billion.

Deutsche Post has benefited from rapid growth in parcel shipments thanks to the popularity of online shops such as Amazon (AMZN.O) and Zalando (ZALG.DE), but price increases have not kept step with rising transport costs.

The group warned last month that it was working on ways to cut costs at the PeP division after it missed first-quarter profit expectations and move PeP's former chief Juergen Gerdes to another unit.

"In recent years we have focused a lot on parcel growth. But we did not sufficiently spend to increase productivity," Chief Executive Frank Appel told journalists on a call.

Shares in the German company fell as much as 9 percent to an 18-month low and were down 7.5 percent at 30.24 euros by 1138 GMT.

Deutsche Post will spend 500 million euros on restructuring this year, primarily to send civil servants into early retirement, cutting its cost base.

CEO Appel said it was not yet clear how many employees would be affected, saying that would depend on their salaries and positions.

Deutsche Post will also invest as much as 150 million euros a year at the PeP division to increase productivity through automation and digitalisation.

It will rein in rising volumes at the parcel business to be more closely aligned with market growth of 5 to 7 percent and try to increase prices whenever corporate clients' contracts come up for renewal.

It has already raised prices for some parcel shipments from July and is banking on regulatory approval to increase postage on standard letters next year.

"The key question is how much more is there to come? How much of the programme is 'cosmetic' and how much will really tackle underlying cost drivers in the business?" analysts at Bernstein said in a note.

(Editing by Mark Potter)