“Extraordinary Market” Yields Record $5.9B Profit for Maersk
Citing what it terms an “extraordinary market situation,” A.P. Moller-Maersk reported record third quarter results full of superlatives. Driven by the performance of its shipping operations, known as the ocean group, which accounts for two-thirds of the company, the Danish company reported a record third quarter, the highest result since 2014 and the largest single quarter in the history of the 100-plus-year-old company.
“We are delivering the thirteenth quarter in a row with year-on-year earnings progress,” said Soren Skou, the CEO of A.P. Moller-Maersk. “We are actually delivery a quarter which is better than the best year ever for the company.”
The financial results are simply staggering. The company reported an overall 68 percent increase in revenues to $16.6 billion in the quarter with total revenues of over $43 billion in the first nine months of the year. Earnings increased a remarkable 355 percent to $5.9 billion in the quarter and with low capital expenditures, Maersk generated $5.3 billion in free cash flow from its operations. The ocean segment is currently operating at better than a 40 percent EBIT margin versus a normalized target of better than six percent.
Skou told investors and reporters that he expects the current situation will remain well into 2022. He pointed to labor shortages at major ports, including the U.S. and U.K., as well as the shortage of trucks to move the containers. For investors, he predicted that the fourth quarter of 2021, as well as the first quarter of 2022, would continue the same financial performance. The company reconfirmed its September forecast for full-year earnings before interest and taxes in the range of $22 to $23 billion and free cash flow from operations above $14.5 billion. Maersk remains on track for the largest profit ever reported by a Danish company.
The exceptional financial results however were hiding the level of operating challenges in the market, including a dramatic increase in costs and a forecast for slowing growth from Maersk. In addition to the labor challenges and a lack of warehouse space to handle all the cargo, Skou said too much of capacity is today tied up waiting outside ports at a time when demand is very strong. He estimated the line currently has 300 vessels waiting outside ports for terminal space.
“Frankly, anything that can sail is out sailing today,” said Skou describing the capacity challenges in the face of the surging demand. In addition to using every available ship, Maersk said it has also increased the average speed of its vessels. On shore, it has expanded gate capacity and added express truck lanes resulting in a record utilization of 78 percent for the company’s terminals. However, despite the best efforts, Maersk reported that it could not overcome all the delays and backlogs and that total volume was actually down four percent. “The whole system has become a giant bottleneck,” said Skou.
The exceptional earnings and cash flows are however helping Maersk to pursue its long-term strategy. The shipping operation highlighted strong growth in the volume on long-term contracts as part of its strategic transformation. The logistic operations have added more warehouses worldwide to increase the company’s geographic footprint and they are making acquisitions including one announced today for a freight forwarder.
The war chest of cash is also being used to reward shareholders. A.P. Moller-Maersk expanded its share buyback program saying it will spend $10 billion between 2022 and 2025. The company is also committed to a dividend policy with a payout ratio of 30 to 50 percent of underlying profits.