CEO Says Kuehne + Nagel Well Positioned For Major Challenges Ahead

Kuehne + Nagel International AG KHNGF on Monday pegged the first-quarter blow to earnings before interest and taxes (EBIT) from the coronavirus pandemic at CHF 46 million ($47.1 million) across its four business units.

Kuehne + Nagel reported a total year-over-year earnings drop of 23.2% for the first quarter. Earnings for Q1 2020 were CHF 139 million ($142.4 million), compared to CHF 181 million ($185.4 million) in the same period last year. 

EBIT was CHF 184 million ($188.5 million) in Q1 2020, down 24% from CHF 242 million ($248 million) last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled CHF 378 million ($387.3 million), down 9.6% from CHF 418 million ($428.2 million).

Although founded in Germany in 1890, Kuehne + Nagel now is headquartered in Switzerland and reports its earnings in Swiss francs.

In Kuehne + Nagel's analyst presentation Monday, CEO Detlef Trefz called the coronavirus "an immense global challenge."

Despite significantly weakened industrial production and trade volumes, Kuehne + Nagel "maintained its operational performance, closely managed a number of special businesses and won new customers. In the case of basic commodities and pharmaceuticals, transport volumes were maintained at a respectable level," Trefz said.

The world's second-largest freight forwarder said in its individual business units, Sea Logistics was negatively impacted by fewer exports from Asia and Road Logistics experienced lower demand in Europe and North America. However, special charters partially compensated for a volume decline in Air Logistics and restructuring progressed well in Contract Logistics.

Kuehne + Nagel maintained that it has stable cash flow and solid liquidity. The company said its free cash flow at the end of the quarter totaled CHF 156 million ($159.8 million), excluding a prepayment of CHF 72 million ($73.7 million) for withholding tax, which is reversible in Q2.

XPO Logistics announced in March that it was acquiring the bulk of Kuehne + Nagel's contract logistics business in the U.K. Details of the transaction — and the boost to Kuehne + Nagel's coffers — were not disclosed.

"Our company will face major challenges in the coming months but is well positioned in view of its customer proximity, agility and digital offerings. A high level of liquidity characterizes the company's solid financial strength," Trefz said Monday.

Kuehne + Nagel has more than 83,000 employees in over 100 countries.

Sea Logistics

The Sea Logistics unit suffered "a significant double-digit decline in volume demand to and from China," Kuehne + Nagel said. That contributed to the transport of 71,000 fewer twenty-foot equivalent units (TEUs), a 6.2% volume decrease year-over-year to 1.07 million TEUs in Q1.
Q1 EBIT in the Sea Logistics unit dropped 29.5% year-over-year, from CHF 112 million ($114.7 million) to CHF 79 million ($81.2 million).
"There is a huge impact due to COVID-19 in Sea Logistics, with an EBIT impact of CHF 29 million ($29.7 million)," Trefz said. The analyst presentation attributed CHF 4 million ($4.1 million) to foreign exchange.

Air Logistics

The company said the Air Logistics unit was particularly affected by the pandemic beginning in March, "when a large number of passenger flights were canceled on the supply side. Global airfreight capacity fell about 60% in just a few weeks. On the demand side, the lockdowns in China, Europe and finally America led to a sharp drop in consumption, resulting in lower airfreight volumes. In contrast, short-term charter solutions for pharma and time-critical transports were in greater demand." 

Air Logistics EBIT declined 11.3% year-over-year in Q1, from CHF 80 million ($81.9 million) to CHF 71 million ($72.7 million). 

Road Logistics

Kuehne + Nagel said its Road Logistics business also took a downward turn in March. 

"Volumes in Europe, especially France, Great Britain and Italy, and North America, primarily the intermodal business, declined significantly. All sectors were affected, with the exception of e-commerce and pharma," the company said in its earnings release.
Road Logistics EBIT dropped 29.2% year-over-year in Q1, from CHF 24 million ($24.6 million) to CHF 17 million ($17.4 million).
Kuehne + Nagel said in a bright note that "performance in Asia remained encouraging," with increased demand for its eTrucknow digital solution.

Contract Logistics

Q1 EBIT in the Contract Logistics division plunged 34.6% year-over-year, from CHF 26 million ($26.6 million) to CHF 17 million ($17.4 million).
"The supply of automotive production and retail was particularly affected by the impacts of the coronavirus," Kuehne + Nagel said. "However, demand for basic goods, pharma and e-commerce services increased."
The company said the coronavirus crisis "required a rapid and comprehensive adjustment of resources, with added support from further progress in restructuring Contract Logistics. Over the quarter, 90% of all Kuehne + Nagel distribution centers worldwide operated without interruption."

Coronavirus response

Kuehne + Nagel said during the COVID-19 pandemic, it has:

• Activated business continuity plans at 1,400 locations in 108 countries.
• Ensured its 45,000 office staff members could access internal systems remotely.
• Imported about 300 million protection masks for its customers via airfreight from Asia.
• Handled twice as many e-commerce shipments in Q1 as in Q4.
• Recorded a 145% increase year-over-year in users of its digital customer platform.

"Our organization has shown a high degree of resilience in the face of this crisis," Trefz said, pointing to "a worldwide trade reduction — in some markets down 20, 40, 60%, especially in February and March. Business in China has started to recover since March and today I would say we are back to 90, 95% normal.

"Europe and the Americas started to become heavily impacted by the COVID-19 pandemic since the beginning of March and the duration and severity of the pandemic is totally uncertain. Also its economic impact is uncertain," he said.

Trefz said he foresees the markets normalizing in the third and fourth quarters.

"We expect to exit the current coronavirus pandemic in a much stronger position than we have entered," he said.