Today’s Winners & Losers: Royal Mail PLC Struggles, As Globo Plc Powers Ahead

Globo (LSE: GBO) and Royal Mail (LSE: RMG) both reported results today. And the two companies couldn’t have reported more polarised results. 

Globo announced that its performance during the first half of 2015 was ahead of market expectations. Revenue expanded 56% year on year and earnings before interest, tax, depreciation and amortisation rose 55% to €34.2m. 

On the other hand, Royal Mail announced that its revenue for its first quarter was unchanged from the previous year. The group’s core UK parcel, international and letters business division recorded a 2% decline in revenue. This division accounts for 80% of revenue and 60% of operating profits.

However, Royal Mail did report that its earnings guidance for the full-year remains unchanged from that set out in fiscal 2015 results. City analysts are expecting the company to report a pre-tax profit of £501m for 2015, earnings per share of 42.8p. 

Powering ahead 

Globo’s management expects the company’s impressive first-half performance to continue on into the second half of the year. So, shareholders have plenty to look forward to. 

Alongside a 56% increase in revenue, Globo’s gross profit margin increased to 59.2% from 58% during the period, thanks to an increased proportion of direct sales. What’s more, along with rising sales at all of the company’s divisions, Globo’s cash generated from operations during the period increased by a third, and free cash flow increased by 70%. At the end of the period, Globo’s net cash position had increased to €47.4m.

City analysts currently expect Globo to report earnings per share of 8.33p and a pre-tax profit of £36.4m for full-year 2015. After reading through today’s trading update, it’s easy to conclude that the company is well on the way to achieving this target. Based on current City forecasts, Globo is trading at a forward P/E of 5.9. 

Cutting the fat 

In today’s trading update, Royal Mail’s management tries to put a positive spin on what is becoming a worrying trend for the company.

Royal Mail’s sales seem to be stuck on a permanent downward trajectory and the company is struggling to maintain its current level of profitability. 

The one bright spot in the company’s trading update was the fact that UK parcel revenues expanded by 2% in the three months to June.

Nevertheless, the “trading environment remains challenging” for Royal Mail, and as a result, the company is accelerating its “pace of change to drive efficiency, growth and innovation, while maintaining a tight focus on costs“. In other words, Royal Mail is struggling to cut costs fast enough to offset sales declines. 

Struggling to adapt 

Unfortunately, some City analysts aren’t convinced that Royal Mail can adapt fast enough to maintain its position in the UK postal market. Competitors such as DPD, DHL, Hermes and Amazon are all powering ahead with a modern delivery network and new infrastructure. Royal Mail is grappling with higher costs and a less flexible workforce than rivals.

And the consensus appears to be that Royal Mail has a long way to go before it catches up to rivals in terms of margins and efficiency.

City analysts expect the company’s earnings per share to slump 18% next year before rebounding by 5% during 2017. The company is currently trading at a forward P/E of 11.9 and supports a dividend yield of 4.1%.