Maersk Swings to Loss, Warns Trade Tensions Hitting Shipping Demand
May 24 2019 - 11:19AM
Dow Jones News
By Costas Paris and Adria Calatayud
Danish shipping giant A.P. Moeller-Maersk AS swung to a
first-quarter loss and warned that rising trade tensions between
the U.S. and China could cut container growth by up to a third this
year.
Maersk's warning adds to an increasingly bleak outlook for the
container shipping industry, which now expects the tariff-filled
trans-Pacific dispute to be a significant drag on earnings. Demand
for shipping consumer goods, manufacturing parts and other anchors
of global trade is waning at the start of the season when retailers
typically stock up for the year-end holidays.
"New tariffs can potentially reduce expected growth in global
container volumes by up to 1 percentage point," from Maersk's
current projection of 3% growth, Maersk Chief Executive Soren Skou
said in an investor conference call Friday. Chief Financial Officer
Carolina Dybeck-Happe said on the earnings call, "We still see
uncertainties related to the market outlook, mainly related
to...the weak global economic growth, in addition to risk from a
further escalation of trade tensions between the U.S. and
China."
Mr. Skou said he expects the concerns over trade tensions to
shift to U.S.-Europe relations once a resolution with China is
reached.
Maersk shares tumbled more than 4.5% on Friday before recovering
to change hands around 2% lower at 7,228 Danish kroner apiece
($1,084) in afternoon trade in Copenhagen.
Maersk, a trade bellwether controlling nearly 20% of
container-shipping capacity, reported a net loss of $659 million,
compared with a $2.73 billion profit a year earlier. The loss
included $552 million booked for discontinued operations. The
company's earnings a year ago were boosted by the sale of its oil
business.
Maersk kept its full-year earnings outlook at around $5 billion.
Adjusted earnings before interest, taxes, depreciation and
amortization -- which excludes impairment charges -- was $1.24
billion in the first quarter, up 33% from a year ago.
Ebitda at the Maersk Line container shipping unit jumped 42% to
$927 million thanks to a sharp improvement in operating margin to
13.4%.
The company said it is launching a new dividend policy, aiming
to pay out between 30% and 50% of its underlying earnings, which
will be implemented starting this year. Maersk also said it intends
to buy back shares worth up to 10 billion Danish kroner ($1.49
billion).
The trade standoff between U.S. and China looks set to curtail
growth in trans-Pacific seaborne transport this year if no
settlement is reached. Higher tariffs the U.S. imposed last year
triggered an increase n volumes as companies pulled forward
purchases and shipments to get ahead of potential new levies. The
higher levies the Trump administration has moved to impose this
summer include tariffs on more consumer products that are the
backbone of container shipping, including finished electronics,
furniture and other retail goods.
Shipping industry measures show freight rates, which peaked at
the end of last year driven by cargo owners front-loading cargo to
avoid tariffs, have been slipping this spring amid declining
volumes.
"The tariffs are the biggest negative risk that can seriously
hit volumes and earnings," said Jonathan Roach, a container
shipping analyst at London-based Braemar ACM. "The optimism we had
just a few weeks ago when we thought a trade deal would be signed
has evaporated. There is a lot of uncertainty out there."
Maritime data provider Alphaliner this week cut its container
volume growth estimate for this year to 2.5% from 3.6%.
Chinese shipping executives say they have withdrawn box capacity
in the trans-Pacific route since the first round of tariffs were
introduced last summer. Cosco Shipping, the world's third biggest
box-ship operator, has removed 10% of its carrying capacity on the
route since the end of last.
U.S. container imports into the West Coast fell 0.5% in the
first quarter from a year ago, according to Bimco, a shipping
industry group, and exports from those ports most exposed to
trans-Pacific trade fell 18% in the same period.
Write to Costas Paris at costas.paris@wsj.com
(END) Dow Jones Newswires
May 24, 2019 11:04 ET (15:04 GMT)
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