Royal Mail share price falls on parcel revenue warning

Peter Spence
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Fears over increasing competition have become part and parcel of Royal Mail statements (Source: Getty)

Freshly privatised Royal Mail has been suffering from more parcel delivery induced headaches, today warning that parcel revenues are likely to be below expectations.

Chief executive Moya Greene says that the company has seen a "weaker than expected performance in UK parcels" in the first three months of the delivery firm's financial year. Parcels revenue dropped by one per cent in that period, despite an increase in volumes.

Royal Mail has "delivered low single digital revenue growth" in the three months ended 29 June, says Greene, with "good performance in letters".

But it's parcel delivery that investors will be most concerned by. That operation is now the largest part of Royal Mail's business, and the marketplace is getting fierce. Despite attempts to innovate with the launch of Sunday deliveries, the company's competition is also in on the game.

Other big players such as DPD Hermes, UK Mail, and Amazon Logistics Service are all launching Sunday delivery services this year, while competitor RICO Logistics is even offering sameday evening delivery. Royal Mail notes in today's interim management statement that competition in some areas "has intensified more than expected as other carriers seek to fill capacity in their networks by aggressively reducing prices".

Analyst as Espirito Santo Investment Bank say that while they anticipated an improvement in letters and deterioration in parcels, they "had not assumed sufficient magnitude in these changes".

Greene acknowledges that Royal Mail faces "increasing challenges" in this key market, signalling that "parcels revenue for the year is likely to be lower" than Royal Mail had expected. The company hopes to offset that downturn with initiatives launched to take advantage of trading in second half of the year, and in particular Christmas. Winter is shaping up to be Royal Mail's first big test since going public.

Update: Royal Mail shares fell by more than four per cent in early trading, falling below their first day close of 455p and currently trading at around 450p a share. Investors don't seem convinced that Royal Mail can deliver on its promises to offset weaker parcels performance.

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