Royal Mail warns Amazon Deliveries to cut size of parcel market
Royal Mail Plc, the British postal service that sold stock to the public last year, said first-half profit declined and warned that Amazon.com Inc.'s move to develop its own delivery network will trim the parcel market for other carriers.
Operating profit fell 21 percent to 279 million pounds ($436 million), excluding some costs, in the six months ended Sept. 28, Royal Mail said in a statement today. On an underlying basis, earnings increased by 13 million pounds. The stock fell as much as 7.2 percent.
The company, one of Britain's biggest employers, has sought to adapt its letter-focused network to more lucrative package delivery. Amazon's parcel network will reduce the annual growth rate of the market available for other postal companies to 1 percent to 2 percent for the next two years, Chief Executive Officer Moya Greene said in an interview.
"The parcel business goes through periods like this: too many players introduce too much capacity at the same time," she said. "You're vying for fewer parcels in the industry overall. It just takes a couple of years for that to wash through."
Sales gained 2 percent on an underlying basis to 4.53 billion pounds, with letter revenue gaining 1 percent as volume fell less than expected, Royal Mail said. Parcel volume rose 2 percent, delivering sales of 1.46 billion pounds.
Shares Rise
The shares traded 4.6 percent lower at 447.80 pence as of 9:16 a.m. in London. The stock, which began trading in 2013, has lost almost a fifth of its value this year, while German rival Deutsche Post AG is down 7.2 percent in the period.
The company faces "top-line challenges," Barclays analyst Rishika Savjani said in a note to investors today. "Strong cost discipline has supported, and is likely to continue supporting, margin expansion."
While full-year results will depend on sales over the Christmas period, the company said it expects U.K. costs to be flat on an underlying basis for the year. Royal Mail said a reorganization program will deliver savings of about 70 million pounds a year starting fiscal 2016, more than it originally expected.
Royal Mail's net debt widened to 570 million pounds from 555 million pounds on March 30. The board recommended an interim dividend of 6.7 pence a share.