- Maersk reeling under high bunker prices and is unable to compensate freight rates.
- They are expanding their transport and logistics and expects an earning between $3.5 billion and $4.2 billion this year. .
- Analysts have already slashed their expectation to $3.69 billion earnings on an average.
- The company is projecting an underlying profit above the $356 million of last year.
Despite the fuel price downgrade being smaller than what was predicted by analysts, A.P. Moller-Maersk has cut down its 2018 earnings forecast on Tuesday, due to higher fuel prices, reports Reuters.
This has prompted in a massive surge in shares of the world’s biggest container shipping company.
Higher Prices
The container shipping industry has suffered from low freight rates amid a global oversupply of vessels, while Maersk and rivals have warned a global trade war could hit business.
“We continue to encounter very high bunker (fuel) prices, which we have not been able to get fully compensated for in freight rates, leading to an adjustment in our expectations for the full-year 2018,” said Chief Executive Soren Skou.
However, the Danish company added spot freight rates had recovered after a significant drop in the second quarter, and its volumes were growing in line with the market.
Maersk is more reliant than ever on the shipping industry after selling its oil and gas business last year, and plans to step up competition to delivery companies UPS (UPS.N) and Fedex by expanding in transport and logistics.
The company now expects earnings before interest, tax, depreciation and amortisation (EBITDA) of between $3.5 billion and $4.2 billion this year, down from the $4.0-$5.0 billion seen previously.
“Rising fuel prices are really hurting profits in an industry under pressure,” Sydbank analyst Morten Imsgard said.
Maersk Profit Expectation
Following the unexpected announcement, Maersk’s shares initially fell more than 5 percent, but then jumped to close 6.4 percent higher at 8,954 Danish crowns.
A Thomson Reuters I/B/E/S SmartEstimate forecast showed analysts had already slashed their 2018 earnings expectations for Maersk to an average of $3.69 billion ahead of the warning.
“Some people just sell immediately when they see a profit warning issued. But the market may have feared an even more dramatic profit warning,” Imsgard said.
Maersk said it still expected to make an underlying profit this year. Its previous guidance was for an underlying profit above the $356 million achieved last year.
The company, due to publish full quarterly earnings on Aug. 17, said EBITDA stood at $900 million in the second quarter on revenue of $9.5 billion.Average bunker fuel prices were 28 percent higher in the period compared with a year earlier, while freight rates were 1.2 percent lower, it said.
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Source: Reuters
