Maersk Posts Record Profit, Steps Up Buyback Program

Date: Thursday, May 6, 2021
Source: Wall Street Journal

A.P. Moller-Maersk A/S said it would launch a roughly $5 billion share-buyback program as unrelenting demand for manufactured goods helped the Danish shipping company post a record profit for the first quarter.

Maersk said net profit surged to $2.7 billion, up from $197 million in the first quarter of last year, boosted by big retailers such as Walmart Inc. and Inc. restocking inventories that were depleted early last year after the coronavirus pandemic hit.

The result came in above the average forecast of $2.38 billion of 10 analysts surveyed by FactSet.

Maersk is the world’s No. 1 containership operator, moving nearly 17% of all container capacity, according to data provider Alphaliner, and its performance is considered a barometer of global trade.

“It’s been our best quarter ever,” said Maersk CEO Soren Skou. He said demand is driven by a race to replenish low U.S. inventories with consumers spending Covid-19 related stimulus checks mostly for online shopping. “That won’t change anytime soon as the American and other major economies are recovering fast,” he said.

Revenue rose 30% to $12.44 billion, in line with guidance provided by the company last week.

Maersk said shipping volumes rose 5.7% year-over-year in the quarter and that average freight rates were 36% higher.

The company’s shares surged 6.4% on the Copenhagen Stock Exchange to 15,945 kroner after the strong earnings report.

Maersk last month concluded the 3.3 billion kroner, equivalent to $533.6 million, first phase of its current 10 billion kroner share-buyback program, and plans to buy back the remaining 6.7 billion kroner between by the end of September. A new program of up to 31 billion kroner, worth approximately $5 billion, will be executed over two years when the current one is finalized, the company said.

The expanded share buyback is “supported by the strong earnings and free cash flow generation seen in both 2020 and 2021,” the company said.

Mr. Skou said he expects the boom for container ships that began late last summer to continue until the end of the year.

“Demand from our customers for space on ships is very high up in the third quarter. The freight rates will normalize at some point, but we expect the current strong market to continue into the fourth quarter,” Mr. Skou said. “The pandemic continues to impact the industry with a temporary economic upside, along with significant operational challenges.”

The cost of shipping a container from China to Los Angeles surged to $4,140 in April from $1,579 a year earlier, and the cost of moving one from Asia to Europe rose to $3,934 from $741, according to the Shanghai Containerized Freight Index.

Maersk last week increased its forecast for container demand growth to between 5% and 7% this year from a February forecast of 3% to 5%.

Mr. Skou said container ships still face long delays to unload at congested ports around the world, including the U.S. West Coast gateways of Los Angeles and Long Beach, and that the capacity crunch will continue after 50 of Maersk’s ships were stranded in the Suez Canal for almost a week in March when a giant boxship, operated by a competitor, ran aground.

Unlike many smaller carriers, Maersk has been focusing on long-term contracts, rather than relying on spot rates. Operators that agree to prices in the spot market can benefit from short-term spikes, but also lose out when rates fall, often below operational costs.

The company said it already has completed roughly 80% of its contract deals for this year, with the remainder to be settled by the end of this month. Long-term contract coverage will increase 20% compared with 2020, the company said.

The earnings boost will accelerate Maersk’s investment into its inland logistics business. Since 2016, when Maersk set out to become an integrated logistics operator, the conglomerate has sold its oil-and-tanker businesses and invested tens of millions of dollars in warehousing and customs-clearing services globally.

Revenue from the company’s logistics and services division rose 42% year-over-year in the first quarter to $2 billion.

“The benefits from the extraordinary freight market will disappear at some point,” Mr Skou said. “What is the growth we’ve seen in our logistics business. Our strategy to offer inland logistics to our ocean customers is playing out and wie are supercharging that part of the business.”


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