Deutsche Post said on Monday it was shutting down its U.S. domestic express parcel business and cutting a further 9,500 jobs, severing ties with a service that has been a drain on earnings since 2005.
To counter a slide in demand in the United States that has accelerated with the credit crisis, Europe’s biggest mail and express delivery company said it will now focus its U.S. operation on international shipping, leaving a rump of 3,000-4,000 DHL staff in the country.
The move increases the group’s job cuts in the United States to 14,900 and will reduce its air shipments to fewer than 100,000 per day from 1.2 million.
Restructuring costs for the U.S. express business would now reach $3.9 billion, $1.9 billion more than previously planned, Deutsche Post said.
Additional restructuring, one-off charges in other businesses and write-downs on some assets would likely lead to a full-year net loss, it added.
Post shares gained more than 9 percent and were up 7.1 percent at 10.02 euros at 1629 GMT, while the German blue-chip DAX index was up 1.77 percent. Post’s share price has more than halved over the past six months.
“The announced measures — as dramatic as they sound, given that they include very drastic job cuts — are necessary in order to get the company’s cost and performance problems under control again,” ING analyst Axel Funhoff wrote to clients.
Sluggish consumer spending and shrinking investments by businesses are hurting shippers around the world, with the United States being hit hardest. Retail sales there dropped for a third consecutive month in September, posting their biggest decline in more than three years.
Deutsche Post said the U.S. express business would post an EBIT loss of $1.5 billion this year, more than the $1.3 billion previously expected.
The U.S. business has been hurting Deutsche Post’s earnings since it moved its U.S. air hub to Wilmington, Ohio from northern Kentucky three years ago. The move came after it bought rival Airborne Express for $1.05 billion, making its DHL business the No. 3 player in the United States.
But if cooperation with UPS went through as planned, there would no longer be a role for the Wilmington hub, Chief Financial Officer John Allan told journalists. He did not say whether it would then sell or shut down the airport.
Deutsche Post has agreed to cooperate with UPS on air freight in the United States, but the talks have stumbled as sliding demand squeezed margins and the crisis cut into companies’ spending. Post Chief Executive Frank Appel said he was still confident the talks would wrap up by year’s end.
Deutsche Post confirmed it saw full-year EBIT at about 2.4 billion euros, excluding one-time effects and its Deutsche Postbank unit. The company had cut its outlook last month. It held off giving a new outlook for next year.
Third-quarter adjusted earnings before interest and tax (EBIT) fell 8.5 percent to 429 million euros ($553.2 million), just missing an average estimate of 433 million euros in a Reuters poll of analysts.
The company trades at about 6.9 times its estimated 2009 earnings, at a discount to rivals UPS and rival FedEx as investors worry that the U.S. express business will remain a millstone around its neck.