COPENHAGEN: Danish shipping and energy conglomerate A.P. Moeller-Maersk A/S said net profit fell sharply in the second-quarter, knocked lower by tumbling freight rates and weak oil prices.
Net profit dropped to $101 million in the three months to end-June from $1.07 billion in the same period a year earlier on a 16% fall in revenue to $8.86 billion. The Danish company’s performance fell short of analysts’ expectations of net profit of $188 million on revenue of $9.07 billion, according to consensus estimates from data provider FactSet.
“The result is unsatisfactory,” said Maersk Chief Executive Soren Skou. “Cost reductions and operational optimizations, however, made a significant contribution to mitigating the impact of the negative market conditions.”
Mr. Skou said the costs in Maersk Line were at an all-time low, dropping for the first time below $2,000 per forty-foot equivalent container unit, while the company’s oil division should reach break even, on the basis of its underlying earnings, by the end of the year.
The shares rose in morning trading, up nearly 4%, amid a continuing rally on global stock markets, partly fueled by a rise in crude prices.
When Mr. Skou took the helm of Maersk last month, succeeding Nils S. Andersen, his first job was to consider splitting up the conglomerate, to boost profitability at a difficult time for the global shipping industry. Mr. Skou said he would report on the progress of the strategic review before the end of the third quarter.
Underlying profit, which strips out one-off items, dropped to $134 million in the second quarter from $1.1 billion a year earlier. Maersk Line, the world’s biggest container operator in terms of capacity, swung to an underlying loss of $139 million, from an underlying profit of $499 million a year ago. Maersk Oil contributed a profit of $130 million, down from $217 million a year earlier.
The company said average container freight rates were 24% lower year-over-year in the quarter, while the oil price was down 26%.
Global container demand grew 2% year-over-year, but the global container fleet grew 6% during the same period, Maersk said. Freight rates declined across all trades, by the most in North America and West Central Asia, but trade in Africa, Oceania and Europe was also notably lower, it said.
For the full year, the conglomerate expects to report an underlying result significantly below last year’s $3.1 billion, as previously flagged in its guidance, given weak freight rates. The company also maintained its forecast that global demand for seaborne container transportation would increase 1% to 3% this year.
The company said it expected cash flow used for capital expenditure of around $6 billion this year, down from a previous forecast of around $7 billion.
Maersk Oil expects to cut costs by 25% to 30% by year-end, compared with levels in 2014, well above its 20% target, after shedding 1,500 jobs, or a quarter of its staff.
Maersk Oil said it would lose about 40% of its production and revenue as of July 2017, after losing a bid to continue as operator of Al Shaheen, Qatar’s biggest offshore oil field. The Qatari field contributed 42% of the company’s second-quarter output of 331,000 barrels a day.
