By Jann Bettinga

May 14 (Bloomberg) -- Deutsche Post AG, Europe's biggest mail carrier, said first-quarter profit fell 18 percent following writedowns at the Deutsche Postbank AG unit and slowing U.S. economic growth that hurt earnings at the DHL Express division.

Net income declined to 407 million euros ($629 million), or 34 cents a share, from 499 million euros, or 41 cents, a year earlier, the Bonn-based company said today. Profit missed the 419 million-euro median estimate of 16 analysts surveyed by Bloomberg News. Sales rose 1.8 percent to 15.7 billion euros.

Chief Executive Officer Frank Appel is faced with turning around DHL Express in the U.S. and is considering whether to sell a majority stake in Postbank, Germany's biggest consumer bank by clients. U.S. Express operations are still ``disappointing'' and Deutsche Post expects to present a turnaround plan for the unit on May 28, Chief Financial Officer John Allan said today.

``I don't expect they will get rid of the losses'' in the U.S., even if DHL Express contracts out some routes to save money, said Axel Funhoff, an analyst at ING in Brussels with a ``buy'' recommendation on Deutsche Post shares.

Deutsche Post fell as much as 20 cents, or 1 percent, to 20.16 euros in German trading and was down 0.1 percent as of 11:02 a.m. in Frankfurt. The shares have fallen 14 percent this year, valuing the company at 24.5 billion euros.

Postbank Writedowns

Postbank reported a 19 percent slump in first-quarter net income to 116 million euros on May 8 because of 174 million euros in writedowns related to the U.S. subprime-mortgage market collapse. Deutsche Post holds 50 percent plus one share in the Bonn-based bank.

Earnings before interest and taxes at DHL Express dropped 32 percent to 21 million euros as the Americas region recorded a 10 percent decline in sales. Operations in the U.S. were hurt by falling shipment volumes and lower pricing on domestic express deliveries, the company said.

Deutsche Post bought DHL in 2002 and expanded U.S. operations with the purchase of Airborne Express in 2003. The express unit hasn't made a profit in the U.S. since then as it competed with United Parcel Service Inc. of Atlanta and Memphis, Tennessee-based FedEx Corp in their home market.

Turnaround Plan

Deutsche Post scrapped a 2009 breakeven target for the U.S. unit last year and wrote down the value by 594 million euros in the fourth quarter. A turnaround has been hampered by delivery delays in 2005 at a new package-sorting hub as well as by slowing economic growth this year.

FedEx, the second-largest U.S. package-shipping company, said May 9 that fourth-quarter profit will miss its forecast after surging fuel prices raised costs by at least $100 million more than estimated. UPS cut its 2008 profit forecast in April and reported that first-quarter shipments fell because of a ``dramatic'' economic slowdown.

Deutsche Post earlier this month appointed Ken Allen, the head of DHL Express's eastern Europe, Middle East and Africa operations, to run DHL Express in the U.S. Some analysts have speculated Deutsche Post may seek a partnership with UPS, FedEx or the U.S. Postal Service to help reduce losses in the country.

``We have been working very hard on a turnaround plan,'' Allan said today in an interview with Bloomberg Television. ``We think that there is a lot we can do to very significantly improve the performance of U.S. Express.''

Banks' Interest

Deutsche Bank AG and Commerzbank AG, Germany's two biggest lenders, have said they're interested in buying Postbank, which serves more than 14.5 million customers at about 850 branches. The bank, listed on Germany's 30-member benchmark DAX Index, has a market value of 9.5 billion euros.

Deutsche Post hasn't yet reached a conclusion on whether to sell Postbank and is ``not going to rush that process,'' as fixing the U.S. business takes priority, Allan told reporters on a conference call today. The German mail carrier aims to make a decision on the retail-banking unit within ``the next relatively few months,'' he said in the interview.

Group earnings before interest and taxes, excluding one-time gains or costs, will rise to about 4.2 billion euros this year and 4.7 billion euros in 2009 from 3.76 billion euros in 2007, Deutsche Post said today, repeating an earlier forecast. Ebit in the first quarter dropped 15 percent to 851 million euros.

Profit in the 2007 period was inflated by a gain of 59 million euros from the sale of Vfw AG, a waste-disposal company.

Easter Effect

Revenue growth in the first quarter was held back by this year's early Easter holiday in March, which meant that Deutsche Post's German operations had two fewer working days versus last year, when Easter took place in April. Revenue at the mail- delivery division fell 1.4 percent to 3.9 billion euros.

Deutsche Post lobbied Germany's government last year into setting a minimum wage for letter carriers. The move helps protect the company's domestic mail business from rivals paying lower wages after Germany's market for letters weighing less than 50 grams (1.8 ounces) was opened to competition in January.

The market opening's effects on earnings have been ``very, very modest indeed,'' Allan said today.

To contact the reporter on this story: Jann Bettinga in Frankfurt at jbettinga@bloomberg.net.