Royal Mail has revealed revenues from parcel deliveries overtook letters for the first time as it hiked its sales outlook thanks to a boom in online shopping during the pandemic.
Shares in the group rose as much as 9% as it said full-year revenues at Royal Mail could now be between £380 million to £580 million higher year-on-year.
This marks a sharp reversal on the fall of up to £250 million previously estimated in its scenario-based forecast and would see the division deliver a “better than break-even” result if sales came in at the top of the new range.
It comes as rocketing levels of internet shopping have sent parcel deliveries soaring, with Royal Mail reporting a near-10% jump in revenues to £5.7 billion over its first half.
In its busiest day, Royal Mail processed 2.5 million tracked parcels.
This compared with earnings of £61 million a year ago and comes after its core Royal Mail postal arm plunged to a £176 million operating loss.
Group pre-tax profits crashed 90.2% to £17 million over the first half.
Interim executive chairman Keith Williams cheered the boost from rocketing delivery demand, with parcels revenues now accounting for 60% of group-wide sales, compared with 47% a year earlier.
He said: “Whilst the Covid-19 pandemic continues to present challenges for both Royal Mail in the UK and (international parcels business) GLS, the first-half performance has been above our initial expectations in many areas.”
But the first-half results show the costs faced during the coronavirus crisis, with the group forking out £155 million in its first half for social distancing measures and to cover a rise in absence rates.
The ongoing decline in letters also continued to weigh on the group, with mailings down 33%, while parcel mailings lifted 31%.
Royal Mail is looking to capitalise on the online shopping shift, recently announcing a new doorstep parcel collection service.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: “The postman is more likely to ring at the door with a bulky parcel these days than push envelopes through the letter box and adapting to the e-commerce boom is proving a painful shift for the company.”
But she said group revenue had “turned a corner” and added that “collecting parcels straight from the door should help put more volumes through the network and drive revenues despite the headache of initial set up costs”.
