By Ed Ballard
Royal Mail PLC (RMG.LN) warned Tuesday over intensifying
competition in the parcel delivery market, but said a
stronger-than-expected performance from its letters business will
help it meet full-year expectations.
"Given the increasing challenges we are facing in the U.K.
parcels market, our parcels revenue for the year is likely to be
lower than we had anticipated," Chief Executive Moya Greene said in
a statement.
"However, through cost-control measures and with continued good
letters performance we expect to be able to offset the impact on
profit," she added.
Overall, comparable sales for the first quarter to June 29
climbed 2% as letter delivery volumes declined slower than
expected, Royal Mail said. Letters revenue rose 3% driven by price
increases, beating expectations--even as volumes slipped 3%.
Shares in the company dropped after the announcement, trading
1.3% lower at 460 pence at 0741 GMT, having earlier dipped nearly
4%.
Royal Mail is facing competition from new entrants including
Amazon.com Inc. (AMZN) to the parcel delivery market. Innovation
from rivals such as DPD Hermes--which offers customers precise
delivery times--is piling on the pressure.
The strength of the British pound is also making it more
expensive to send packages overseas, the company said Tuesday.
Measures to defend its share of the parcels business--for
instance by lengthening its business hours on Sundays--will start
to have an impact in the second half, Royal Mail said.
Royal Mail joined the stock market last October when the
government sold a majority stake in a flotation raising almost 2
billion pounds ($3.42 billion). The stock soared, provoking
complaints that the 330 pence offer price was too cheap.
Shares climbed as high as 618 pence in January but have since
shed around a quarter of their value amid concerns over profit
margins and the sustainability of Royal Mail's obligation to
deliver to every address in the U.K. for the same price.
The company complained to regulators in June that the obligation
leaves it vulnerable to rivals such as TNT Express NV (TNTE.AE)
which aren't obliged to deliver to remote places.
Concerns over Royal Mail's market share and an antitrust probe
in France "are likely to continue to weigh on the share price in
the near term," Panmure Gordon advised. The broker maintained its
buy rating, saying the stock's 4.5% dividend yield underpins its
allure.
Along with TNT and FedEx Corp. (FDFX), Royal Mail warned last
week that losses from the French investigation could have a
material impact on its business.
Write to Ed Ballard at ed.ballard@wsj.com
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