Lockdown shopping hoists Royal Mail profits, outlook uncertain

© Reuters. FILE PHOTO: The logo of Royal Mail is seen outside the Mount Pleasant Sorting Office as a delivery vehicle arrives, in London, Britain, June 25, 2020. REUTERS/John Sibley

By Yadarisa Shabong

(Reuters) -Royal Mail said customers splurging online during lockdowns helped profits more than double last year as revenue from parcel deliveries outpaced letters for the first time, but it withheld 2021 guidance as Britain's high streets reopen.

The British company witnessed its fortunes turn last year as the pandemic, which forced shut brick-and-mortar stores and caused a surge in online shopping, came as a boon to its home delivery service and struggling UK business.

"We're likely to have quite a strong first quarter this year but then the uncertainty beyond that becomes really difficult," finance chief Mick Jeavons told Reuters in a phone call on Thursday.

Royal Mail (LON:RMG) said its parcel volumes in the United Kingdom were down 2% last month compared with the surge it saw in April 2020 during the first lockdown.

While annual revenue topped analysts expectations, its profit slightly missed market estimates as it dealt with higher costs to cater for the surge in parcels.

Nevertheless, it met its own forecast set out earlier this year, sending shares to a 3-year high before they reversed course to trade 2% lower by 1007 GMT.

"Keeping a lid on costs going forward will be a challenge," Hargreaves Lansdown (LON:HRGV) analyst Susannah Streeter said in a note, citing the retreat in the share price.

The over-500 years old company has been undergoing major changes in the past few years as emails replaced letters and e-commerce boomed, leading it to reposition as a technology-led parcel company that also delivers letters.

Business is flourishing at peers including UPS, FedEx Corp (NYSE:FDX), DHL, and Amazon.com Inc (NASDAQ:AMZN) since the pandemic shifted purchases of everything from food to furniture online.

Despite an expected return to the high street as Britain reopens for business, Jeavons said he expects a "substantial" part of the growth in parcels to stick and that behaviours of online shoppers are likely to be more permanent than not.

Royal Mail's UK business, which was bound to make losses before the pandemic hit, recorded 344 million pounds ($485 million) in annual profit as advertising mail also recovered.

To deal with the greater load of packages, it employed more postal workers and kept extra vans and parcel sorting centres to improve its service.

The company reported a 116% surge in adjusted operating profit to 702 million pounds ($990.59 million), and a 17% jump in revenue to 12.64 billion pounds.

($1 = 0.7087 pounds)