News / Panalpina upbeat over H1 results, but analysts have doubts

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Panalpina has struggled to get its customers to adjust to the “new normal” of higher freight rates, putting its yields under pressure.

In a perhaps unjustifiably upbeat earnings release, the forwarder said that, in its first half, EBIT increased year-on-year from CHF34.7m to CHF42m ($43.8m).

While net forwarding revenue rose to CHF2.63bn from CHF2.59bn, gross profit fell from CHF736.3m to CHF673.1m.

However, analyst Jefferies put a more negative spin on the results, pointing out that EBIT in the second quarter fell 30% to CHF26m, “driven equally by a CHF6m drop in air freight and a CHF6m drop in ocean freight, reflecting market share losses and ongoing pressure on yields and conversion ratios”.

First half EBIT fell 31%, “with limited signs of recovery”.

It said: “Panalpina is the weakest operator in the sector and the restructuring-driven earnings recovery has so far failed to materialise.”

David Kerstens, analyst for Jefferies, told The Loadstar he believed Panalpina’s upbeat press release “misrepresented” the results.

“It was a dramatic quarter,” he said. “In April, Panalpina thought it could increase prices, but it hasn’t worked. It is now saying that may be true for the full year. Air freight will continue to be under pressure, but there may be some recovery in ocean.

“There have been three quarters of high significant volume growth, but it is struggling to pass higher prices on to customers.”

But, he noted: “All forwarders have the same issue. Customers have got to get used to the current environment of freight rates.

“Shippers have not been prepared to pay more. Kuehne + Nagel has the same issue; it has been under yield pressure for four consecutive quarters. It’s been more difficult than people expected.”

Panalpina is more exposed, however, than some of its rivals. Some 75% of its earnings come from transport, while just 25% come from value-added services. In contrast, rival DSV – “best in class”, according to Mr Kerstens – takes just 25% of its earning from transport.

Panalpina’s air freight volumes increased 7% in the first six months, just below estimated market growth of 8%. Gross profit per ton fell 10% to CHF623, resulting in a gross profit overall down 3% to CHF294.6m, from CHF 304.5m. It said in an earnings call that its own controlled network – its freighter operations – would help it avoid higher costs and spot rates in the peak season.

In ocean, Panalpina’s volumes increased 5% year-on-year in the first half, above the estimated market growth of 4%. However, gross profit per teu fell 12% to CHF283, resulting in a gross profit overall of CHF214.6m, down from CHF232.9m. Ocean reported an EBIT loss of CHF2.6m for the first half-year, down from a profit of CHF1.3m in 2016, but returned to profitability in the second quarter.

In logistics, “the turnaround of underperforming sites continued”, it said. But gross profit fell 18% to CHF163.9m in the first half, but profitability was now increasing, it added. Logistics posted a reported EBIT of CHF5.4m, up from CHF0.3m.

Panalpina CEO Stefan Karlen urged carriers, both air and sea, to be “much more disciplined than in previous years”.

He said: “While we are confident that we can improve unit profitability in ocean freight in the second half of the year, unit profitability in air freight will remain under pressure. We will therefore concentrate on what we can influence directly: controlling cost very effectively and pushing ahead with our operations transformation programme.”

Jefferies, however, noted: “Panalpina had set a target to double [its full year 2916 EBIT by full year 2020], driven equally by operational improvements, organic growth, innovation and bolt-on acquisitions, which is looking increasingly ambitious.”

You can see the full results here.