Maersk Suspends Share Buyback as It Navigates Uncertain Market; Shares Fall — 2nd Update

By Dominic Chopping

A.P. Moeller-Maersk shares plummeted Thursday after the shipping giant suspended its share buyback and warned earnings will fall sharply this year amid uncertainty in the Red Sea and industry overcapacity that continues to drag on freight rates.

Shares in Copenhagen fell 14% to DKK11,125 in early trade.

The Danish shipping company 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.

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.

Considering significant oversupply challenges and high uncertainty about the duration and degree of the Red Sea disruption, Maersk expects underlying earnings before interest, tax, depreciation and amortization this year of between $1 billion and $6 billion, having booked $9.8 billion in 2023.

"While the Red Sea disruption is expected to help 1Q, the general state of overcapacity is likely to return as 2024 progresses. At this stage, we presume this overcapacity will continue into 2025," analysts at JPMorgan said in a note.

The analysts say consensus Ebitda for 2024 is at around $7.1 billion, above the top end of the new guidance, and they assume this would come down to $4 billion-$5 billion.

Maersk 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 05:08 ET (10:08 GMT)

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