Maersk Suspends Share Buyback as It Navigates Uncertain Market — Update

By Dominic Chopping

A.P. Moeller-Maersk suspended its share buyback program in a move to preserve cash amid uncertainty surrounding disruption in the Red Sea and industry overcapacity that continues to drag on freight rates.

The Danish shipping giant had previously cautioned that its buyback program was under review, with profitability increasingly tested by a continuing rise in industry capacity. It had planned to buy back $12 billion of shares between 2022 and 2025, or $3 billion annually.

Re-initiation of the buyback will be reviewed once market conditions in its main shipping unit have settled, it said.

After the pandemic-fueled cargo boom, when freight demand outstripped the supply of ships, freight rates have come under pressure with a surge in new vessel launches creating a supply glut.

With no end in sight to the industry overcapacity, Maersk had already intensified cost-cutting and doubled down on restructuring efforts and it said it is continuing to focus on cash preservation measures and reducing operating costs.

The escalation of hostilities in the Middle East has offered some support to rates though. Recent attacks on merchant vessels in the Red Sea has forced shippers to divert their vessels by thousands of miles, which has increased their fuel costs but sent freight rates higher.

"The current market remains one of robust volumes, but while the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates, eventually the oversupply in shipping capacity will lead to price pressure and impact our results," Chief Executive Vincent Clerc said.

"The ongoing disruptions and market volatility emphasize the need for supply chain resilience."

Overall revenue in the company's main shipping business fell 46% to $7.18 billion as freight rates fell 50% on the year, while volumes were 11% higher.

Maersk said that global ocean-container demand this year could rise between 2.5% and 4.5% from 2023.

The company is currently working to transform itself into a fully integrated logistics provider, reducing its reliance on the container-shipping business. As part of that process, it has decided to spin-off and list its Svitzer towage and marine services business.

In the final quarter of 2023, Maersk swung to a net loss of $436 million from a profit of $4.95 billion in the same period a year earlier as revenue fell 34% to $11.74 billion. Analysts polled by FactSet had seen a net loss of $571 million on revenue of $11.49 billion.

Maersk said it expects an underlying loss before interest and tax this year of up to $5 billion, having booked a nearly $4 billion profit in 2023.

It will pay a dividend of 515 Danish kroner ($74.40), an 88% cut to the 2022 payout.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

February 08, 2024 03:36 ET (08:36 GMT)

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