Deutsche Post, the German global mail, logistics and express company, on Thursday said it has scrapped a break-even target for its DHL unit in the U.S., but raised its full-year profit forecast for the group as a whole.

The admission that it will take longer to reverse the money-losing U.S. express operation came as Deutsche Post reported a 35 percent drop in third-quarter earnings.

Net income declined to 350 million euros ($512 million) in the three months to Sept. 30 from 535 million euros ($782 million) a year earlier, when the company benefited from a one-time, 276 million-euro ($403.5 million) gain from the early redemption of a bond issued by its banking unit. Revenue rose 5 percent to 15.6 billion euros ($22.8 billion).

Net income for the first nine months slipped 2 percent to 2.5 billion euros ($3.7 billion], but underlying earnings were up 10 percent after stripping out one-time gains of 375 million euros ($5.48 million) in the 2006 period. Revenue increased 5.3 percent to 46.5 billion euros ($68 billion).

"The first nine months were right on target," Chairman and CEO Klaus Zumwinkel said. Despite lower third-quarter earnings, Deutsche Post raised the full-year profit guideline to 3.7 billion euros ($5.4 billion) from 3.6 billion euros ($5.26 billion) previously forecast. The Bonn-based company said it no longer expects its U.S. business to be profitable by the end of 2009 because of the economic slowdown in the wake of the subprime mortgage crisis. "Ground and international (services) are further improving in the U.S.," Chief Financial Officer John Allan said. "However, it would be foolish not to account for the fact that macro conditions have changed over the past few months and affect our domestic business in the states."

The U.S. business, built on the acquisition of Airborne Express in 2003, has struggled to compete with larger rivals UPS and FedEx in their home market. The U.S. express division produced a modest increase in sales in the first nine months as rising revenues in ground and international operations outweighed lower shipping volumes and thinner margins in the domestic air business. But the recovery slowed in the third quarter, with domestic air services particularly affected by weaker demand. Overall, the express division boosted earnings in the first nine months by 60 percent to 248 million euros ($363 million). Revenue increased 1.9 percent to 10.1 billion euros ($14.8 billion).

Bruce Barnard
The Journal of Commerce