Bloomberg, February 19, 2020
By Christian Wienberg – A.P. Moller-Maersk A/S, the world’s largest container shipping company, is positioning itself for a strong rebound in two months, based on an expectation that the fallout of the coronavirus on global trade may soon peak.
“Over the last two and a half weeks we have seen a steady decline in the number of new cases” and “that is positive,” Chief Executive Officer Soren Skou said in an interview with Bloomberg Television’s Matthew Miller on Thursday, after the company published a weaker-than-expected fourth-quarter report.
“It means, very well, we could be set for a peak within the next two weeks,” he said. “If that were to be the case, then we would expect a very weak March and a rebound in April, a sharp rebound in April,” he said. “But there is still a lot of uncertainties out there.”
Investors seemed unsure how to interpret the overall message. Shares in the company opened down but then jumped about 4%, before sinking roughly 4% by mid-afternoon local time.
The comments followed a set of results that lagged behind analyst estimates, and Maersk warned investors that its 2020 outlook is overshadowed by “considerable uncertainties” due to the outbreak of the coronavirus.
The Copenhagen-based company expects its operating profit, or Ebitda, to reach about $5.5 billion this year, less than the $5.94 billion estimated by analysts. Maersk acknowledged it was seeing a “weak start to the year.”
Skou said that Maersk has already had to cancel more than 50 departures from China in the past two weeks. Looking forward, he says “a lot will depend on what happens with the virus in the next few weeks.”
Frode Morkedal, managing director of equity research at Clarksons Platou Securities AS, said that the “bottom line is that while the reported figures and guidance are slightly below consensus expectations, we believe there has been a growing fear that container exports from China might be significantly disrupted for longer, hence the guidance could be viewed as relatively optimistic, we argue.”
“The guidance was weak but it may be due to Maersk including a bigger effect from the coronavirus than the market estimates,” Morten Holm Enggaard, an analyst at Jyske Bank, said in a note.
Skou told reporters he wouldn’t quantify the effect of the virus on Maersk’s guidance, and said it’s difficult to estimate the impact.
“I really wish we didn’t have to provide a guidance,” he said. Maersk didn’t actualy settle on its 2020 Ebitda forecast until the day before publishing its report, he said.
In 2019, Ebitda reached $5.71 billion, just shy of the $5.78 billion analysts had predicted.
The coronavirus adds to a litany of challenges for the container shipping industry, which is already grappling with the fallout of U.S.-China trade tensions as well as persistent oversupply.
Since its outbreak, the coronavirus has disrupted global supply chains and hurt shipowners, as China grows into the maritime industry’s main source of cargo with 90% of all global trade moving by sea.
Maersk said it expects global sea-borne container growth to be 1-3% in 2020 compared with 1.4% in 2019. The company expects its own growth rate to be in line “or slightly lower” than the market.
Maersk also listed new low-sulfur fuel that the industry has been forced to use from last month as an uncertainty that could impact bunker fuel prices and freight rates in 2020. It noted “weaker macroeconomic conditions” as an external uncertainty factor.
Maersk, which operates a fifth of the world’s container fleet, has in recent years tried to reduce its reliance on sea-borne shipping.
On Wednesday, the company said it agreed to buy U.S. warehousing and distribution company, Performance Team, as part of its strategy to expand land-based transport services. The deal is valued at $545 million.
These were some of the other highlights from Maersk’s annual report:
- FY revenue $38.9 billion, estimate $39.28 billion (range $38.56 billion to $39.97 billion)
- FY Ebit $1.73 billion, estimate $1.76 billion (range $1.54 billion to $1.96 billion)
- FY underlying profit $546 million
- FY dividend per share DKK150
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