Deutsche Post raises earnings guidance

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Deutsche Post, the German postal group on Wednesday upped earnings guidance after closing its £3.8bn ($4.5bn) deal with UK logistics group, Exel.

The company now expects operating profit to reach €3.7bn compared to earlier guidance of €3.6bn. The company is set to benefit from reduced costs for health care as a result of new legislation relating to health insurance which will reduce its costs by about €70m a year.

“As a one-time effect in 2005 the reduction in our annual obligation to fund future shortfalls led to a reversal of health care provision with a positive earnings before interest and tax impact of of about €1bn.”

The shares did not respond positively in early trade and were down 1.4 per cent at €19.39, which, one analyst said, was a result of the market focusing on problems in the United States.

Per-Ola Hellgren of Landesbank Rheinland-Pfalz said: “Investors have discarded the positive news and focused on problems in the US, which have been known about for some time but which they have now quantified and the uncertainty associated with this is weighing on the shares. I think there is also an element of profit taking because the stock has recently performed well.”

Losses at the Americas arm of its Express division were expected widen to €400m, compared with previous guidance of losses of €300m as it absorbs the negative impact of combining two hubs. Overall for this division, operating earnings were expected to improve by about €130m to €500m.

Investors may also have been discouraged by the fact that the net one-off gain was worth €0.3bn while earnings guidance was upgraded by only €0.1bn.

“The statement implies a 31 per cent cut to full-year 2005 guidance on earnings before interest and tax (ebit) for Express. Group ebit has been raised from €3.6bn to €3.7bn but this is due to a net €300m provision release, so there is about a €200m net downgrade,” Dresdner Kleinwort Wasserstein said in a research note released on Wednesday.

Deutsche Post said that the impact would be offset by €0.7bn of new provisions for new “optimisation measures”, such as the creation of a new global corporate services division, creating a net benefit of about €0.3bn.

Operating profit guidance for its mail division remained unchanged at €2bn. In its logistics division, excluding Exel, operating profits are expected to improve by about 10 per cent, at the upper end of earlier guidance, while the financial service division is expected to show an increase of 10 per cent.

The group is scheduled to report on the full year on March 14.

Deutsche Post added it had completed its purchase of Exel on Tuesday as part of its strategy of diversification.

Deutsche Post will see the end of its exclusive licence in its domestic market - its biggest source of profit - on December 31, 2007. In preparation for increased competition, Deutsche Post has trimmed its workforce and cut costs at home.

The postal operator has also realised the need to diversify and has been quick to internationalise since its flotation on the stock market 10 years ago. However at least one of its acquisitions has been problematic: the purchase of Airborne Express in 2000, led to far deeper than expected losses and a management shake-up in the US.

Investors have raised concerns over the acquisition of Exel, finalised on Tuesday, flagging up comparatively slender pre-tax margins and the price it paid - a 48 per cent premium to the share price before speculation about the deal emerged.

Shares in Deutsche Post were flat at €19.54 in early trade.

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