Shipping giant A.P. Moller-Maersk has cut its 2018 earnings forecast due to higher fuel prices, although the downgrade was smaller than some analysts had feared, prompting shares in the world's biggest container shipping company to rise.
The container shipping industry has suffered from low freight rates amid a global oversupply of vessels, while Maersk and rivals have warned that a global trade war could hit business.
”We delivered good progress in Q2 on revenue, volumes and unit cost across our business, and results improved from a weak Q1. Spot freight rates have restored after a significant drop in Q2, and volumes are growing in line with [the] market," said chief executive Soren Skou.
"However, we continue to encounter very high bunker prices, which we have not been able to get fully compensated for in freight rates, leading to an adjustment in our expectations for the full-year 2018," added Skou.
However, the Danish company added that spot freight rates had recovered after a significant drop in the second quarter, and its volumes were growing in line with the market.
Shipping Focus
Maersk is more reliant than ever on the shipping industry, after selling its oil and gas business last year, and it plans to step up competition to delivery companies UPS and Fedex by expanding in transport and logistics.
The company now expects earnings before interest, tax, depreciation and amortisation (EBITDA) of $3.5-$4.2 billion this year – down from the $4.0-$5.0 billion seen previously.
"Rising fuel prices are really hurting profits in an industry under pressure," Sydbank analyst Morten Imsgard said.
A Thomson Reuters I/B/E/S SmartEstimate forecast showed that analysts had already slashed their 2018 earnings expectations for Maersk, to an average of $3.69 billion, ahead of the warning.
"Some people just sell immediately when they see a profit warning issued, but the market may have feared an even more dramatic profit warning," Imsgard said.
Profit Expectations
Maersk said that it still expected to make an underlying profit this year. Its previous guidance was for an underlying profit above the $356 million achieved last year.
The company, due to publish full quarterly earnings on 17 August, said that EBITDA stood at $900 million in the second quarter, on revenue of $9.5 billion.
Average bunker fuel prices were 28% higher in the period when compared with a year earlier, while freight rates were 1.2% lower, it said.
News by Reuters, edited by ESM. Additional reporting by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
