Deutsche Post

‘Mister Cool’ Breaks More Records

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Mister Cool's new ride is all electric. Picture source: Reuters

In the turbulent world of postal and logistics, Deutsche Post DHL, the global leader in the sector, continues to navigate its way successfully under the steady hand of a chief executive who has earned the nickname “Mister Cool.”

Former McKinsey manager Frank Appel in fact could offer some consulting services to competitors or suppliers on the basis of a track record that is producing record earnings and share prices at the publicly held German company.

In doing so, he is keeping a company whose core business goes back five centuries to the imperial mail service of the Holy Roman Empire competitive with relative newcomers like Amazon, Fedex and UPS.

That core mail delivery business, formerly a state-owned monopoly, now accounts for only a quarter of Deutsche Post’s revenue as its logistics, package delivery and express courier businesses propel it to new heights.

“All of our divisions, thanks to their focus on fast-growing markets such as global e-commerce, are optimally positioned for long-term growth. ”

Frank Appel, CEO, Deutsche Post DHL

The Bonn-based company reported its strongest ever second quarter and its seventh straight quarter of all-time highs as pretax income topped analysts’ expectations even though revenue growth lagged forecasts.

The share price shot up to a record €34.40 at the market opening and Commerzbank analyst Adrian Pehl reiterated his price target of €41 after he rated Deutsche Post shares a “buy” at the beginning of the month.

“All of our divisions, thanks to their focus on fast-growing markets such as global e-commerce, are optimally positioned for long-term growth,” Mr. Appel said in releasing the record results.

As he expressed confidence that the company would reach its EBIT (earnings before interest and taxes) target this year of €3.75 billion, compared with €3.5 billion last year, Mr. Appel could look on serenely as US-based competitors UPS and Fedex chip away at Deutsche Post’s leading position through acquisitions. The German company, which expanded rapidly under Mr. Appel’s predecessor, Klaus Zumwinkel, has scaled back acquisitions as it consolidates its operations.

But Mr. Appel’s serenity does not mean standing still. Even as it throttles back on new purchases, Deutsche Post last year bought UK Mail for €285 million. That acquisition powered a 61.5 percent gain in the company’s Parcel Europe business in the second quarter, as the British unit generated €127 million in additional revenue.

Deutsche Post has also been adept at fending off potential competitors on its home turf. The company convinced Amazon earlier this year to contract the German firm to handle deliveries for its fresh grocery service rather than create its own infrastructure.

Mr. Appel could also offer advice to Germany’s floundering carmakers, mired in a scandal over diesel emissions. He began buying the all-electric StreetScooter three years ago, going so far as to purchase the manufacturer in order to scale up production, as part of a plan to transition the company’s fleet of 70,000 vehicles to electric engines.

Serenity marks Mister Cool’s approach in general. Refugee flood? Not a problem. Deutsche Post makes employees available to train the newcomers to join its expansion. Brexit? Not a problem. Rather, in Mr. Appel’s view, a chance to increase earnings as deliveries get more complicated.

Deutsche Post registered its biggest second-quarter profit increases in the Express division, with its “time-definite” deliveries to 220 countries and territories up 12.2 percent to €469 million, and in the supply chain division, its contract logistics business, up 21.6 percent to €124 million.

Revenue in the eCommerce – Parcel business rose 13.6 percent, although decreases in the mail business and investment in the parcel business limited earnings growth to 4 percent, to €259 million. Earnings declined to €67 million from €69 million in the freight and forwarding business, as the company was unable to quickly pass on cost increases to customers. (Two years ago, this division was dipping into the red at times.)

Overall, operating profit in the quarter rose 11.8 percent to €841 million, higher than the €818 million expected by analysts, while revenue rose 4.4 percent to €14.8 billion. Analysts had forecast revenue of €15.1 billion for the quarter. Per-share earnings rose to 50 cents from 45 cents, and bolstered hopes of a dividend increase.

Bigger is better in the logistics business and being market leader can attract more revenue and bolster profits. Mister Cool will be keeping a wary eye on his competitors even as he has a steady hand on the tiller.

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