RM share price falls as Amazon parcel rethink hurts revenue

[TrueBlueTerrier]

Royal Mail share price falls as Amazon parcel rethink hurts revenue

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Amazon's move to scrap free delivery on orders below £10 has hit profits at Royal Mail, which warned that the performance of its crucial parcels business has been weaker than expected.

In a trading update that comes two days ahead of Royal Mail's shareholder meeting, the first since the 500-year old postal service was privatised last year, chief executive Moya Greene said the business is facing intensifying competition, with parcels revenue down 1% over the three months to the end of June, pushing down shares by 3%, to 450p.

The price remains well above the Royal Mail's controversial flotation price of 330p but below the peak of 615p that shares hit in January.

Richard Hunter, head of Equities at Hargreaves Lansdown stockbrokers, said the honeymoon period for Royal Mail was over. "The weakness in the parcels performance is a concern, and may prompt questions as to whether this is transient, or whether the change is structural. The fact that this decline has been offset by an improvement in the letters business, which is not a long-term area of growth, and cost-cutting measures, may help in the shorter term, but these are both temporary reliefs."

Overall revenues were up 2% over the three months to the end of June.

Royal Mail blamed the slip in its parcels business on Amazon's decision to introduce a £10 minimum spend for free delivery and also to expand its own delivery network. The online retail giant scrapped free "super-saver" delivery on items worth less than £10, introducing a minimum spend in January.

The decline was offset by a better-than-expected performance in the letters business. Revenue from letters increased 3%, as a result of local election mailouts that boosted mail volumes and an increase in the cost of stamps. The price of a first-class stamp rose by 2p to 62p at the end of March, while a second-class stamp rose 3p to 53p. In the UK, letters remain the biggest earner for Royal Mail, bringing in 59% of its income compared with 41% from parcels. However, letters are expected to decline by around 4% to 6% each year, while parcel delivery is seen as a growth business as consumers embrace online shopping.

Royal Mail is not changing its forecast for full-year profits, although last week it warned it could face a hefty fine from French authorities, who are investigating alleged anti-competitive practices at Royal Mail's French parcel delivery business. Rivals TNT Express and FedEx have also confirmed they are being investigated and face possible fines. The European parcel delivery business, GLS, which operates in 37 countries, turned in a robust performance, with revenues up 6%.

Greene said that trading had been characterised by a good performance in the letters business, but "a weaker than expected performance in UK parcels, largely driven by the intensifying competitive environment".

Greene will face shareholders in Birmingham on Thursday, where she is expected to face questions over her £1.35m salary and pay package, as well as threats to Royal Mail's universal service obligation – the pledge to deliver letters at the same price to all parts of the country six days a week.

[wookie]

Royal Mail prices for Large parcels are overpriced. Couriers are undercutting by a big margin.

[Wiggins79]

I just don't get this at all. All any of us can go on is our own experience of volume. In our sub-office, we've never had so many of bags of parcels every morning without fail. The only "quiet" day is on a Monday before the deluge starts again on Tuesday.
Far be it from me to suggest that the bosses fiddle figures to suit their needs, but isn't it all a bit convenient that they announce this just before the conference? Gives further backing to their argument that tnt et al's cherry-picking is going to make the USO impossible. And anyone who thinks there is a chance in a capitalist society (RM bosses included) of the regulator or government turning round and stopping there other private companies doing what the hell they want is living in cloud cuckoo land. Really, RM bosses want the USO scrapped and this is going to be the excuse they use. After all, wasn't it part of the privatisation agreement that the USO would only carry on as long as it was "financially viable" (or words to that affect) to the newly private RM?
Looking at the bigger picture with certainly in our area (and many others reading on here) the total cutting down of staff including no holiday reliefs, and slashing of overtime for low hours contract workers despite their actually being plenty of uncovered duties etc. is it possible the bosses know something we don't? That day-off reliefs are all about to lose their current jobs? No worry for those with their own duties, but a terror for those like me covering duty holders days off. And we all know the track record for the union looking out for non-duty holders.....
Food for thought. Or I'm just a massively untrusting cynical git.

[Brain Fury]

Royal Mail prices for Large parcels are overpriced. Couriers are undercutting by a big margin.

Do you think there might be a reason for that e.g. we don't want the large parcel business?

[BoltonPostie]

Royal Mail prices for Large parcels are overpriced. Couriers are undercutting by a big margin.

Do you think there might be a reason for that e.g. we don't want the large parcel business?

So we don't Love parcels now then?

[freelunch]

Historically when large companies like Amazon try to expand into non-core activities in an effort to retain more revenue it leads to failure or disappointing performance.
They had a good thing going when they had several couriers expanding networks to cope with Amazon parcels and competing aggressively against one another.

IMO Amazon's UK operations could already be considered 'mature' and it's only a matter of time before their management are told to focus on the core (online retail).
My guess is TNT will pick up Amazon Logistics in due course.

[Brain Fury]

Royal Mail prices for Large parcels are overpriced. Couriers are undercutting by a big margin.

Do you think there might be a reason for that e.g. we don't want the large parcel business?

So we don't Love parcels now then?

No reason to be shocked. RM has made no secret of the fact that they only want parcels that can be handled through the standard network. Large parcels were previously always done at a loss and it doesn't make sense to continue to do that.

[wookie]

Royal Mail prices for Large parcels are overpriced. Couriers are undercutting by a big margin.

Do you think there might be a reason for that e.g. we don't want the large parcel business?

I have no idea, to me it looks like Royal Mail got greedy with the price and its allowed competitors to take some business. Now that customers have started to use someone else Royal Mail have to come up with a strategy to get them back. Will they? Who knows.....

[El-Bandito]

Royal Mail prices for Large parcels are overpriced. Couriers are undercutting by a big margin.

Do you think there might be a reason for that e.g. we don't want the large parcel business?

I have no idea, to me it looks like Royal Mail got greedy with the price and its allowed competitors to take some business. Now that customers have started to use someone else Royal Mail have to come up with a strategy to get them back. Will they? Who knows.....

Sorry m8 but you really do have no idea. I am sooooo long in the tooth that I remember going out on delivery with 1 bag, a few packets, recorded, specials etc. Coming back to the office for a 2nd delivery. The stamp prices were 17p 2nd class and 26p 1st class. Royal mail had basically 75% full-time employment.

55000 job losses later RM made MORE profit as a state owned Public service 20 years ago!!!!

Now we work longer, with less full time staff, more vans, allegedly less mail( 16 bags of mail is apparently less), more d2ds more packets, even more managers though to beat us about performance issues.

Sack the board, Sack ALL the graduates that came up with WCM AND ALL the other shitty names they want to come up with. WE ARE ROYAL MAIL. US THE WORKERS. WE OWN A MAJOR SAY IN OUR FUTURE. DO not let these idiots run OUR company into the ground.

[timemax]

The quality of Amazon parcel delivery in our area is very poor with parcels left on doorsteps in full view of passers-by, and on wet days I have seen some soaking wet. I expect there is no difference elsewhere - what concerns me is the recipients ringing Royal Mail and some of us getting the blame for others shortcomings ( as RM managers are apt to do ) before any proper investigation.

[freelunch]

... to me it looks like Royal Mail got greedy with the price and its allowed competitors to take some business. Now that customers have started to use someone else Royal Mail have to come up with a strategy to get them back. Will they? Who knows.....

RM board will very likely go for the 'quick fix'. Buy a couple of competitors who have eaten into profitable chunks of the business. This gives revenues a boost without having to trial an idea or project manage a recovery plan.
Major shareholders like "synergies" or "expanding the existing operations whilst removing duplicate administration" so board members see competitor buy-outs as an easy way to remain in their cushy roles.
If they lower prices it could lead to a price war, hurting revenues further and their seats on the board then become untenable.

[oypostie]

RM board will very likely go for the 'quick fix'. Buy a couple of competitors who have eaten into profitable chunks of the business. This gives revenues a boost without having to trial an idea or project manage a recovery plan.

I suspect the competition commision (or whatever there new name is) would prevent this as we are still the dominant player. We will have to rely on our boards good ideas and market awareness.

We're all doomed

[Darren Bent]

It seems to me Royal Mail have too many bad ideas and no more ideas to win business. It is simple.

Cut price of postage by 20p and increase DSA by 10p and cut price of parcels to £1 for DVD type parcels. Increase tracking and scrap recorded delivery. I have vote no to reappointment to every director on board.

[Lounge Lizard]

Royal Mail prices for Large parcels are overpriced. Couriers are undercutting by a big margin.

Do you think there might be a reason for that e.g. we don't want the large parcel business?

I have no idea, to me it looks like Royal Mail got greedy with the price and its allowed competitors to take some business. Now that customers have started to use someone else Royal Mail have to come up with a strategy to get them back. Will they? Who knows.....

Sorry m8 but you really do have no idea. I am sooooo long in the tooth that I remember going out on delivery with 1 bag, a few packets, recorded, specials etc. Coming back to the office for a 2nd delivery. The stamp prices were 17p 2nd class and 26p 1st class. Royal mail had basically 75% full-time employment.

55000 job losses later RM made MORE profit as a state owned Public service 20 years ago!!!!

Now we work longer, with less full time staff, more vans, allegedly less mail( 16 bags of mail is apparently less), more d2ds more packets, even more managers though to beat us about performance issues.

Sack the board, Sack ALL the graduates that came up with WCM AND ALL the other shitty names they want to come up with. WE ARE ROYAL MAIL. US THE WORKERS. WE OWN A MAJOR SAY IN OUR FUTURE. DO not let these idiots run OUR company into the ground.

"The stamp prices were 17p 2nd class and 26p 1st class."
You're sooooo long in the tooth that you don't quite remember the postage rates.
17p 2nd class was September 1990 to September 1991, while 1st class was 22p.
26p 1st class was July 1996 to April 2000, while 2nd class was 19p or 20p.

[TrueBlueTerrier]

It seems to me Royal Mail have too many bad ideas and no more ideas to win business. It is simple.

Cut price of postage by 20p and increase DSA by 10p and cut price of parcels to £1 for DVD type parcels. Increase tracking and scrap recorded delivery. I have vote no to reappointment to every director on board.

Cant increase DSA price by 10p - It comes under Access Headroom and is one of the areas that is governed by legislation.