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Both Royal Mail and Ocado had hedged 80% of fuel costs last year, but other pressures keep pressure on the shares
Delivery companies Royal Mail PLC (LSE:RMG) and Ocado Group PLC (LSE:OCDO)’s shares are feeling the pain today as, like airlines, they adjust to the impact of rising fuel costs on distribution plans.
But both companies have a history of hedging against fuel costs which could make the hit less severe than expected.
Royal Mail’s share price fell by more than 6% at one point this morning as investors fret on the impact of oil prices on companies’ distribution costs.
Royal Mail said in November that the relaxing of social distancing measures would reduce the number of cars needed on the road, which could offset the impact of increasing fuel costs, most of which Royal Mail have hedged against in the short run.
“For 2021-22 we have hedged over 80% of forecasted fuel volumes and we therefore expect diesel and jet fuel costs to be around £188 million in 2021-22, in line with what we communicated in the 2020-21 annual report,” Royal Mail said in its half-year results launched in 2022.
But last week the delivery group received two separate downgrades from brokers concerned more about labour cost inflation than rising fuel costs.
Ocado was also down around by nearly 8% at one point in morning deals.
“The Group uses commodity swap contracts to hedge the cost of future purchases of fuel to be used in the business,” Ocado said in its annual report released in November.
“The cash flows are expected to occur within one year of the reporting date, and hedges cover 50% to 80% of expected risk.”
Ocado hedged diesel prices at 36.9p per litre in 2021, realising a £0.4mln net gain against real prices.
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