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Panalpina Sees Tough Quarter As Pending Merger And Auto Sector Weigh On Results


International freight forwarding and logistics company Panalpina Welttransport (U.S. OTC: PLWTF) reported 0.64 (Swiss Francs, or CHF) per share in earnings for the second quarter of 2019 compared to 0.84 CHF for the same period last year and well below Seeking Alpha's consensus estimate of 0.92 per share. (One Swiss Franc equals $1.01.)

"After it was announced that Panalpina and DSV would join forces, our competitors went more aggressively after our business in the second quarter, but we stood our ground. The decrease in gross profit was chiefly the result of lower margins in air freight and lower volumes from the automotive sector, which shifted into reverse gear. Nonetheless, group EBIT [earnings before interest and taxes] and profit almost reached last year's levels. Given these circumstances, our stable half-year results are a respectable achievement," said Panalpina's Chief Executive Officer Stefan Karlen.

Panalpina reported first half 2019 earnings per share of 1.46 CHF, which was modestly lower than last year's 1.56 CHF for the first half.

In early April 2019, the company announced it would be acquired in a $4.6 billion deal by Danish competitor DSV (U.S. OTC: DSDVF).
Panalpina saw a 1.6 percent year-over-year decline in net forwarding revenue to 1.478 billion CHF as airfreight volume increased 1.2 percent year-over-year, which was offset by a 2.4 percent decline in ocean freight volume.


Management believes that its 1 percent volume growth in airfreight was well ahead of the rest of the market, which management estimates declined 5 percent. Panalpina has some organic growth measures in place and its volume growth has benefitted from prior acquisitions. While the company reported better tonnage than the market, gross profit (GP) for the division was down 7.2 percent year-over-year to 164.1 million CHF as gross profit per ton declined 8.3 percent. Management said that "substantially lower volumes in the automotive sector" was the main reason for the decline in gross profit. This resulted in operating income being cut in half year-over-year to 13.6 million CHF.

Panalpina's Key Performance Indicators

While Panalpina may have seen better tonnage results than the rest of the market in the quarter, it came at a price given the gross profit per ton decline.

Ocean Freight

The ocean freight division saw a 2.4 percent year-over-year decline in volume in the second quarter. Management believes that its volume decline was worse than the rest of the market, which it believes was flat for the quarter. Panalpina is still sorting through a customer loss and soft volumes in inter-Asia. Gross profit increased 0.9 percent in the quarter to 113 million CHF as gross profit per twenty-foot equivalent unit (TEU) climbed 3.1 percent to 304 CHF. In the past, management has said that a 300 CHF gross profit per TEU is required for the division to be profitable. Operating income was 5.2 million CHF in the quarter, significantly better than the 0.3 million CHF result reported last year.


Logistics gross profit declined 4.3 percent year-over-year to 81.2 million CHF. "Seasonality and the downturn in the automotive and technology sectors" were called out as the detractors in the quarter. That said, segment EBIT was nearly 2 million CHF higher at 5.2 million CHF. From the press release, "the division successfully expanded its Logistics Manufacturing Services and in the second quarter achieved the highest quarterly EBIT ever. EBIT reached 8.1 million CHF for the first half of 2019, compared to 6.8 million CHF for the same period last year."

Consolidated gross profit was down 4.1 percent year-over-year to 358.4 million CHF, but operating income was 20.7 percent lower at 24 million CHF. The worse than expected results appear to be largely due to the company being picked off by its competitors as its customers wait to see how the merger with DSV shakes out. Additionally, negative margins from its automotive book of business continue to weigh on results.

"In a highly uncertain macroeconomic and political environment, and against the backdrop of contracting air and ocean freight markets, we will continue to provide our sought-after expertise to existing and new customers. During the coming weeks and months, our focus will remain firmly on living up to our reputation in the market and delivering outstanding service quality," said Karlen.

In reference to the "political environment," Panalpina implemented a $52 per TEU surcharge for shipments moving through the Strait of Hormuz on July 8. Since May, the region has seen attacks on a half dozen oil tankers as well as a U.S. drone.  

Shares of the Swiss company are roughly 2 percent lower today.

Panalpina Stock Chart – MarketWatch

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