Overview:
Denmark’s shipping giant, A.P. Moeller-Maersk, is scheduled to release its second-quarter results on Friday. Here are the key details you should know about:
Revenue Forecast:
According to a FactSet consensus, it is anticipated that the company will report second-quarter revenue of $13.09 billion. This represents a significant 40% decline compared to the same period last year.
Earnings Forecast:
FactSet also predicts that earnings before interest, taxes, depreciation, and amortization (EBITDA) will be $2.5 billion for the second quarter. This is a substantial decrease from $10.33 billion reported a year earlier. Furthermore, net profit is expected to plummet by 93% to $591 million.
What to Watch:
Volumes and Rates:
Sydbank analyst Mikkel Emil Jensen has estimated an average freight rate of $2,442 for a standard 40-foot container (FFE) during the second quarter. According to Jensen, this represents a 51% decline compared to the previous year. The sharp decline in freight rates can be attributed to both decreased demand and the gradual dissipation of bottlenecks. As a result, there is now increased capacity availability, leading to a significant drop in freight rates. This substantial decline in rates will have a “massive” impact on earnings for the second quarter. Additionally, the expiration of contracts signed on better terms will also contribute to the lower average freight rate, Jensen explained. Furthermore, Sydbank forecasts an 8% decrease in transported volumes for the second quarter, driven by macroeconomic deceleration, changes in consumption patterns, and inventory adjustments by companies. Maersk’s main ocean unit is expected to generate revenue of $8.3 billion, with EBITDA falling by 82% to $1.7 billion, according to Sydbank’s projections.
Maersk Faces Potential Market Imbalance and Forecasted Net Loss
Sydbank, a leading financial institution, has projected a stabilization in the demand for goods in the upcoming quarters. However, the delivery of new ships throughout 2023 and 2024 poses a potential risk, which could create an imbalance in the market, thus exerting further pressure on freight rates.
Given these circumstances, Maersk, a prominent global shipping company, is at risk of swinging to a net loss in the second half of this year. In fact, the bank predicts a high probability of such an outcome. Although Maersk’s forecast for 2023 has already factored in the deteriorating conditions, the bank anticipates that a narrowing of the company’s currently wide earnings range is highly likely to occur.
According to Sydbank’s financial models, Maersk is expected to achieve an Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $9.7 billion, along with a net profit of $2.2 billion for the full year of 2023. On the other hand, Maersk itself projects an underlying EBITDA range of $8 billion to $11 billion for 2023, along with underlying earnings before interest and taxes ranging from $2 billion to $5 billion. Additionally, Maersk aims to generate at least $2 billion in free cash flow during the same period.
In 2022, Maersk’s underlying EBITDA stood at an impressive $36.84 billion, with Earnings Before Interest and Taxes (EBIT) at $31.24 billion. Looking ahead to 2023, the company expects its shipping unit to grow in line with the global container market, which is anticipated to range from a decline of 2.5% to a growth of 0.5%.
To support its operations and growth plans, Maersk has earmarked a cumulative capital expenditure target of between $9 billion and $10 billion for the period spanning 2022-2023. Furthermore, the company plans to allocate a budget of $10 billion-$11 billion for 2023-2024 towards capital expenditure.
While the future remains uncertain, Maersk will need to navigate potential market imbalances and closely monitor freight rates to mitigate the anticipated pressure. With their industry expertise and strategic planning, Maersk aims to overcome these challenges and maintain their global leadership in shipping.