Freightways lifts annual profit as express package and business mail division performs well

Freightways shares fell 2 percent on concerns of mounting pressure on earnings margins for the courier and information management company, despite a lift in annual profit on the strength of volume growth and margin in the express package and business mail division and an upbeat outlook for the current financial year.

The shares dropped 16 cents to $7.95 after the result. While net profit was largely in line with expectations, underlying earnings were slightly softer on the back of increased margin pressure, said Bryon Burke, head of equities at Craigs Investment Partners.

"It's nothing disastrous but it's just coming off a bit on light volume," he said. Burke noted the stock had pushed higher ahead of the result, gaining 3.2 percent over the past month.

Freightways, which delivers around 50 million items annually through brands like New Zealand Couriers and Post Haste Couriers, reported a 22 percent lift in net profit to $60.9 million in the year to June 30, while underlying profit before one-off items rose 4.1 percent to $56.6 million. Basic earnings per share, before non-recurring items, lifted to 36.5 cents per share versus 35.1 cents per share in the prior period. Revenue rose 7.9 percent to $545.3 million.

Directors declared a fully-imputed final dividend of 14.75 cents per share, a 2 percent increase on the previous corresponding period of 14.5 cents per share. This represents a payout of about $22.9 million compared with $22.5 million in the prior period. The dividend has a record date of Sept. 15 and will be paid on Oct. 2.

"This result has been achieved in a year that has included the challenges of a significant natural disaster, the completion of a number of major capacity-related projects and at a time of strong growth in volumes and related activity," said managing director Dean Bracewell in the annual results presentation.

The express package and business mail division lifted operating revenue 8.7 percent to $402.6 million. The company said volume growth was "consistently strong, particularly so in the peak month of December." It noted that the growth, from both existing and new customers, created pressure on the service capability of this division at a time when it was transitioning to a new model of freighter aircraft, relocating its primary South Island freight hub and implementing wide-reaching operational contingencies in the aftermath of the North Canterbury earthquake. As a result, modest price increases were implemented to offset rising costs and disruption surcharges were introduced to offset earthquake-related contingency costs.

Bracewell said the package and mail division, which makes up the bulk of the business, is being shored up by package delivery as more people turn to online shopping but said the mail business was still solid, in particular for things like medical reports and records and other urgent business mail.

According to Freightways, its business mail operator, DX Mail, again expanded its postal delivery network in several locations throughout New Zealand to satisfy increasing demand for its overnight and five-day per week delivery of standard-priced letters. Despite the decline of the overall letter market, DX Mail’s postal delivery volumes and physical and digital transactional mailhouse services continue to grow profitably, it said.

Within information management, the operating revenue increased 5.4 percent to $144.2 million. Good results from Shred-X and TIMG New Zealand were in contrast to the performance from TIMG Australia, which was not to expectation, it said.

"Within TIMG Australia, its LitSupport business performed at the bottom end of the range of expectations set at the time of acquiring the business," it said. According to Freightways, restructuring that occurred in November/December and the winning of a number of new contracts has, as expected, improved LitSupport’s performance in the second half of the financial year, but not to the extent that any earn-out is expected to be paid to the previous owners.

Bracewell said, however, he expects the second half improvement at LitSupport to flow into the current financial year.

Looking ahead, Freighways was upbeat. "Volumes and activity levels experienced throughout 2017 are expected to increase during 2018, from both existing and new customers. Accordingly, Freightways is again targeting year-on-year earnings growth."

(BusinessDesk)