Deutsche Post Harvests Online-Shopping Boom With Record Profit

(Bloomberg) -- Deutsche Post AG's third-quarter profit jumped more than threefold to a record as the mail operator shifts to tap booming shipments from Internet shopping and recovered from costs for a failed software project.

The gains came as more online retailers shipped parcels with Deutsche Post, which added the U.K., Europe's largest e-commerce market, to its network in the region this year. To maintain the momentum, the Bonn-based company will add Spain and Portugal in 2017, expanding its reach in Europe to 21 countries to facilitate cross-border services. Parcel shipments in Germany jumped 11 percent, while revenue from that business climbed 13 percent in Europe and 12 percent further abroad. 

Mail operators are trying to manage declines in traditional letter volumes as they build up capacity to handle more goods ordered online. In September, Deutsche Post said it will buy British letter and parcel delivery service UK Mail Group Plc in an effort to boost its presence in the country. That comes after larger rival FedEx Corp. this year bought TNT Express in the Netherlands. PostNL NV, the other part of the former Dutch state monopoly, is the target of an offer from Belgian competitor Bpost SA.

“We are taking an increasingly active role in the development of e-commerce all over the world,” Chief Executive Officer Frank Appel said in the statement. The business is Deutsche Post's “most important structural growth driver.”

Read more: Analysts See Deutsche Post on Track for Targets

Deutsche Post shares rose 1.8 percent at 28.80 euros at 9:54 a.m. in Frankfurt, lifting its gain for the year to 11 percent and valuing the company at 34.8 billion euros ($38.5 billion).

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In addition to underpinning parcel deliveries, e-commerce is boosting lucrative express services, with international volumes rising 6.8 percent in the quarter. More than one in five such shipments will be destined for consumers instead of business clients this year, up from about 10 percent three years ago, as more and more shoppers opt for premium delivery options.

Operating profit surged to 755 million euros from 197 million euros, beating the 746 million-euro average of six analyst estimates compiled by Bloomberg. Deutsche Post, which raised the price for delivering a standard letter in Germany to 70 cents from 62 cents at the beginning of the year, suffered 345 million euros in writedowns and provisions for the failed freight-forwarding project and also booked 81 million euros in provisions for legal and regulatory costs in the third quarter last year. 

Air-freight volume increased 1.5 percent in the quarter, while ocean-freight shipments rose 3.6 percent, Deutsche Post said. Going forward, shipments by sea will be held to the rate of global economic growth, Appel said in an interview with Bloomberg Television, adding the company will continue to make “smaller” acquisitions along the lines of UK Mail.

Deutsche Post stuck to its full-year profit forecast to increase operating profit to between 3.4 million euros and 3.7 million euros.

--With assistance from Anna Edwards and Yousef Gamal El-Din

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Dalia Fahmy