Morningstar | DPW Updated Forecasts and Estimates from 22 Mar 2019
Narrow-moat Deutsche Post DHL posted mid-single-digit year-over-year organic top-line growth in the fourth quarter (6% for full-year 2018), which wasn’t far off our expected run rate. The flagship Express division continues to generate solid volume and yield improvement, recent Global Forwarding execution gains are sticking, and Parcel Germany and Parcel Europe are capitalizing on e-commerce related tailwinds. We will be incorporating full-year 2018 financials into our model, but since our midcycle revenue and margin assumptions remain mostly intact, we don’t expect to materially alter our EUR 28 fair value estimate. At roughly EUR 27.5, the shares are trading in fairly valued territory, representing a more palatable valuation relative to lofty levels seen early last year.Relative to fourth-quarter 2017, revenue improvement reflects continued shipment growth at Express, with core TDI volume up approximately 6% for the quarter and 7.5% for 2018. We estimate Express’ revenue grew in the high single digits organically. Global Forwarding gross revenue was up 6%-7% organically on solid management of sell rates to shippers, as air and ocean volume remained sluggish due to re-pricing efforts. Excluding foreign exchange and the Williams Lea Tag divestiture, Supply Chain sales was up year over year, likely because of new business wins. We estimate Post-eCommerce-Parcel’s (PeP) organic sales increased slightly, as ongoing healthy expansion in the parcel delivery operations across Germany and Europe just offset expected declines in traditional-mail volume. German parcel volumes rose about 5%.
Excluding German post and parcel restructuring costs and a one-time pension-related charge, we estimate total EBIT margin was roughly flat, near 7%. We suspect higher PeP labor costs more than offset leverage from volume growth at Express. Management expects consolidated EBIT of EUR 3.9 billion-EUR 4.3 billion in 2019, which didn’t deviate drastically from our previous assumptions.
Deutsche Post is a mail and logistics services group. In its Mail division, Co. provides domestic and international mail and parcels and is engaged in dialogue marketing, nationwide press distribution services and the electronic services related to mail delivery. Co.'s Express division provides courier and express services to business and private customers globally. Co.'s Global Forwarding, Freight division manages the carriage of goods by rail, road, air and sea, ranging from container transport to solutions for industrial projects. Co.'s Supply Chain division provides warehousing, managed transport and services at every link in the supply chain for customers in a variety of industries.
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