Maersk’s Net Profit Sinks on Low Freight Rates and Crude Prices
Result beat analysts’ expectations, however
ENLARGE
Maersk Line, the world’s largest container operator by capacity, posted first-quarter underlying earnings of just $32 million. Photo: Bloomberg News
Net profit for the quarter ended March 31 was $211 million, compared with $1.54 billion a year earlier. The result still beat three analysts’ expectations, which on average called for a profit of $106 million. Group revenue fell 19% to $8.54 billion.
The results boosted Maersk shares 6.4% to 9,255 Danish kroner ($1,425) in Copenhagen trading.
Maersk said freight rates fell by 26% in the quarter and declined across all trade routes, especially key European, North American and Latin American lines.
Volumes increased 7%, but Maersk’s high exposure to the hard-hit Asia-to-Europe route means it will continue to focus on cutting costs.
Maersk Line still expects a 2016 underlying result significantly below last year, as a consequence of significantly lower freight rates and continued low growth, with global demand for seaborne-container transportation expected to increase by just 1% to 3%.
Maersk Oil reported underlying net losses of $29 million in the quarter, compared with a profit of $207 million, with the average oil price in the quarter at $34 a barrel versus $54 in the year-ago quarter.
The oil unit said it expects to achieve a break-even result in 2016 with oil at $40 to $45 a barrel, having previously needed $45 to $55 a barrel. It forecasts lower exploration costs than in 2015, and higher entitlement production.
“While market conditions remain challenging, we continue to adjust our cost base to the new conditions and maintain a good operational performance across our businesses,” said Nils Andersen, Maersk’s group chief executive.
The shipping industry is reporting earnings after what executives have described as the most bruising three months since the 2008 financial crisis, when world trade nose-dived. Container operators, which move 95% of the world’s manufactured goods, are caught between a 30% oversupply of ships in the water and not enough cargo to fill them. As operators scramble to maintain market share, freight rates have been barely covering fuel costs over the past 12 months.
“Given the circumstances, Maersk remains a rare bright spot in the industry,” said Lars Jensen, who heads Copenhagen-based SeaIntel Consulting. “They stayed in the black and saw their volumes go up 7%, compared with an average of only 1% for the industry, which means they are using their vessels very efficiently.”
Some of Maersk’s biggest competitors, such as Japanese majors Kawasaki Kisen Kaisha Ltd. and Mitsui O.S.K. Lines Ltd. , reported steep losses in the latest quarter. Meanwhile, Korea’s two biggest carriers, Hanjin Shipping Co. and Hyundai Merchant Marine Ltd., may end up in state hands: Their main creditor, Korea Development Bank, has moved to impose widespread restructuring to save them from going bankrupt.
Freight rates across all main sea trade routes were down 30% on year in the first quarter, according to the China Containerized Freight Index.
Anemic growth in Europe and the shrinking Chinese economy have forced the world’s biggest operators to form alliances in an effort to cut costs by sharing port calls, vessels and networks.
It has also kicked off a rare wave of consolidation, bringing together some of the biggest operators in China and Europe.
Write to Costas Paris at costas.paris@wsj.com and Dominic Chopping at dominic.chopping@wsj.com
