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Kuehne & Nagel Profit Rises As Pruning Contracts Pays Off

Published on Jul 14 2015 8:43 AM in Supply Chain tagged: Trending Posts / Kuehne & Nagel

Kuehne & Nagel Profit Rises As Pruning Contracts Pays Off

Kuehne & Nagel International AG’s second-quarter operating profit rose, as being pickier about contracts helped the shipper counter the Swiss franc’s gain and a slowdown in sea-freight markets.

Schindellegi, Switzerland-based Kuehne & Nagel reported earnings before interest and taxes for the three months through June that rose 6.8 per cent to 220 million francs ($231 million), beating the 215-million-franc estimate of five analysts collected by Bloomberg. The company stopped providing forecasts for shipping markets as volatility of rates and volumes rose.

“We have visibility maybe up to the end of the week, but we have no idea how the market looks in one or two weeks,” chief financial officer Markus Blanka-Graff said in a telephone interview. “I’ve been in this business for 20 years, and I’ve never seen anything like this.”

Economic growth has been slower in Europe than in other regions, and the future of Greece as part of the monetary union remains uncertain. China’s economic expansion has also slowed, causing some container shippers and air-freight companies to lower prices to better fill their ships and aircraft. Blanka-Graff said that the company will continue to forego volume growth to protect profitability.

Pruning Business

Air-freight volume handled in the first six months rose 5.2 per cent, while in sea freight, volume fell 1.8 per cent. Blanka-Graff said that the company gave up about 3 per cent of business in sea freight where margins were too low.

“We reduced volumes and profit still rose,” Blanka-Graff said of the sea-freight unit. “As CFO, that’s the way I like it, as eliminating certain contracts also means eliminating some risk.”

While Kuehne paid less than $100 for a standard sea-freight container on some shipping lanes from Asia to Europe up until 30 June, the price for that same container had jumped to $1,800 the following day, Blanka-Graff said.

In January, the Swiss National Bank abandoned a cap on the franc’s value against the euro, causing the country’s currency to surge. That meant a hit to net income at the world’s biggest sea-freight forwarder of 7.3 per cent in the first half. Still, second-quarter earnings rose 6.1 per cent to 173 million francs.

Kuehne & Nagel has declined 6.6 per cent this year, making the stock the second-worst performer in the 19-member Bloomberg Europe Transportation Index, behind Panalpina Welttransport Holding AG, which dropped 12 per cent. The index saw a 1-per-cent fall.

Last month, Kuehne said that it was buying Memphis-based ReTrans, Inc., a brokerage provider of intermodal transport in the US and Canada for full and less-than-truckload shipments, which employs more than 300.

The company reiterated a target to raise EBIT to 5 per cent of net sales. The margin climbed to just under 5 per cent in the first six months, after amounting to 4.7 per cent a year earlier.

“For us, what matters is that we remain profitable, and we believe we can maintain this momentum in the second half,” Blanka-Graff said.

News by Bloomberg, edited by ESM

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