Deutsche Post DHL Earnings: Small-Package and Global Forwarding Demand Continues To Normalize

Narrow-moat Deutsche Post DHL’s DPW first-quarter top line fell 8% (organically) year over year, driven in part by retail-sector destocking and weakening industrial end markets. Global air and ocean forwarding demand and rates also continued to correct off exceptional levels seen earlier last year, especially on trade routes from Asia to the U.S. and Europe. Lingering normalization of business-to-consumer activity (off pandemic highs) for express, e-commerce solutions, and Parcel Germany also played a role, though comps are becoming less challenging. That said, this pullback is not a surprise and revenue was mostly in line with our expectations.

Consolidated EBIT margin fell 170 basis points to 7.8% on lost volume related leverage, along with meaningful wage and cost inflation. That said, segment margins weren’t far off our forecasts (we expected continued normalization), save for Post and Parcel profitability, which was hit by wage accruals associated with the new union agreement. Macroeconomic risk remains elevated, but management reiterated 2023 guidance, which calls for group EBIT of EUR 6.0 billion-EUR 7.0 billion. This compares with roughly EUR 8.4 billion in 2022. We don’t expect to materially alter our DCF-derived EUR 42 fair value estimate. We see the shares as fairly valued relative to our long term free-cash flow growth forecasts.