Denmark's shipping giant, A.P. Moeller-Maersk, is set to reveal its results for the third quarter on Friday. Here are the key details you need to know:
According to a FactSet consensus, A.P. Moeller-Maersk is expected to report a third-quarter revenue of $12.66 billion. This reflects a significant 44% decrease compared to the previous year.
FactSet predicts that the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) will amount to $2.12 billion for the third quarter. This is a considerable decline from the $10.86 billion recorded in the same period last year. Additionally, net profit is projected to plummet by 96% to $334 million. These expected decreases are primarily attributed to the sharp decline in freight rates and weak demand for container freight.
What to Watch For
As the report is released, it will be crucial to pay attention to the impact of these challenging market conditions on A.P. Moeller-Maersk's financial performance.
Stay tuned for the full update on the company's third quarter results.
Container Industry Faces Challenges of Overcapacity
The container industry is currently dealing with overcapacity due to eased bottlenecks in ports and the influx of new container ships. This has caused a decline in demand and has put pressure on freight rates. According to Sydbank analyst Mikkel Emil Jensen, the average freight rate for a standard 40-foot container, known as an FFE, is expected to decrease by 55% to $2,245 in the third quarter of this year.
However, there are some positive factors that may help alleviate the situation. Inflation is expected to burden costs, but a lower level of activity, cost-cutting measures, and lower fuel prices will contribute to a significant drop in costs compared to last year. Fuel costs in the third quarter alone were estimated to have fallen by around $900 million compared to the previous year.
Transported volumes are also predicted to see a decrease of 3% in the third quarter compared to the same period last year. This decline is attributed to macroeconomic deceleration, adjustments in normal consumption patterns, and inventory adjustments by companies.
Despite these challenges, Maersk's main ocean unit is projected to generate revenue of $7.8 billion, with EBITDA falling by 87% to $1.3 billion, according to Sydbank's estimates. While these numbers indicate a difficult period for the container industry, it is hoped that measures such as cost initiatives and lower fuel prices will help mitigate the effects of overcapacity.
Sydbank Anticipates Weak Peak Season and Challenging Market Conditions
Sydbank, a prominent financial institution, predicts a fragile peak season as well as ongoing declines in rates and increasing fuel costs that will impact earnings in the final quarter. Furthermore, the delivery of new vessels will contribute to long-term overcapacity not only for the remainder of 2023 but also in the years ahead, states the bank. Although Maersk has already taken into account the deteriorating market conditions in its 2023 forecast, Sydbank still expects a negative operating result in the fourth quarter.
Adjustments to Earnings Range Likely
Sydbank anticipates a slight downward adjustment or a narrowing of the current earnings range towards the lower end. The bank's modeling projects a full-year Ebitda (Earnings Before Interest, Taxes, Depreciation, and Amortization) of $9.8 billion, while Maersk's guidance for 2023 suggests underlying Ebitda ranging from $9.5 billion to $11 billion. Additionally, Maersk forecasts underlying earnings before interest and taxes between $3.5 billion and $5 billion, along with free cash flow amounting to $3 billion. The company also predicts a decline in global container volumes ranging from 4% to 1% for 2023.
Capital Expenditure Targets
Considering the capital expenditure targets, Maersk's cumulative goal for 2022-23 falls within the lower end of $9 billion to $10 billion, while for 2023-24, it is expected to be in the range of $10 billion to $11 billion.
It is evident that Sydbank's outlook reflects the challenging market conditions faced by the shipping industry. Despite these obstacles, both Sydbank and Maersk remain committed to navigating through this period of uncertainty and adapting to the changing landscape.
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