5 Jul 2013

Freightways expects courier business to pick up pace

7:02 pm on 5 July 2013

Freightways says its courier businesses will start to pick up pace this year, while earnings growth at its information management division - its current star performer - will slow a little.

The courier and data management company said on Thursday it expects to make an after-tax profit of around $38 million for the 12 months ended June, up 6% on the previous year.

Operating earnings are expected to lift by 5% to $65 million.

It's also expecting similar increases for the current 2014 financial year.

The 6% annual net profit increase is well below the 10%-12% increase the market was expecting.

Forsyth Barr head of research Andy Bowley says business is switching to residential, rather than to companies, which will lead to lower growth in the future.

"The cost to serve for a courier business like Freightways is much higher in terms of residential deliveries and, therefore that higher cost to serve means lower margin."

Chief executive Dean Bracewell said although the forecasts are slightly below what the market was expecting, it's still a positive growth story.

And he's expectint the company's courier businesses to contribute a bigger slice of profits this year.

Mr Bracewell said the company expects 2014 to see a lift in its express package division with brands such as New Zealand Couriers, Castle Parcels and Sub 60 Couriers starting to increase their volumes more consistently than in 2013.

He said the information management division will grow in the next year, but probably not as much earnings wise because it will be investing in new capacity in that business to accommodate the growth - so that is a cost.

About 60% of Freightways' $100 million information management business comes from Australia, and Mr Bracewell said they haven't seen any impact of an economic slowdown across the Tasman yet.

Shares in Freightways fell 6.7% to $4.21 on Thursday after its earnings and profit guidance for the 2013 and 2014 financial years were lower than what the market had been expecting.

Craigs Investment Partners head of private wealth research Mark Lister said that's because the economy isn't growing as fast as previously thought, and it is a view that's likely to be shared by other companies.

He said Freightways is often seen as a barometer of the New Zealand economy, and people will look at it to see how it might reflect the position of other New Zealand companies.