By Anastasiia Kozlova and Amir Orusov
(Reuters) - Swiss freight forwarder Kuehne+Nagel reported a 39% drop in quarterly operating profit but beat market expectations on Tuesday, aided by cost cutting measures amid geopolitical concerns.
Conflicts and geopolitical tensions are challenging the freight industry, which has to face shipping disruptions caused by militant attacks in the Red Sea and Russia's airspace closure following its invasion of Ukraine.
Persistent supply chain issues in this complex geopolitical situation require more sophisticated supply chain solutions and more value-added services from companies like Kuehne+Nagel, a company representative said.
Kuehne+Nagel's shares were down 3.3% at 0714 GMT.
Earnings before interest and tax fell to 376 million Swiss francs ($412 million) in the first quarter of 2024, ahead of analysts' average forecast of 330.5 million provided by LSEG.
"Our focus on efficiency and streamlined structures allowed us to reduce costs per unit by 12% in Sea Logistics and 14% in Air Logistics," CEO Stefan Paul said in a statement.
In March, the logistics group said it had adjusted its cost base during the fourth quarter of 2023 to cope with the tough market conditions, resulting in redundancy costs of 53 million francs that included laying off less than 2% of its workforce.
"Investors should be expecting further reductions in cost in the quarters ahead, improving margins and earnings," said Alex Irving, an analyst at Bernstein.
The group, which operates in more than 100 countries, said the earnings decline was driven by its three key segments, with a more than 40% drop in quarterly EBIT for sea and road logistics, and a 39% decline in air logistics.
Vontobel analyst Michael Foeth said that while air freight margins and cash flow were weak in the first quarter, increasing volume trends and improvements in sea freight were reassuring.
Volumes for the sea and air logistics units rose by 1.5% and 3.4% in the quarter, respectively.
Kuehne+Nagel, which has not provided an outlook for this year, confirmed the 2026 targets announced last year.
($1 = 0.9120 Swiss francs) (This story has been corrected to show the Red Sea crisis and Russia's airspace closure are not linked to Q1 results in paragraph 2, and to add company comment in paragraph 3)