Maersk Raises 2024 Outlook While Cautioning of Long-Term Challenges
Maersk reported what management called “a positive start” to the year in its first quarter results that was in line with expectations which prompted the company to raise its overall outlook for 2024 despite continued challenges. In a perverse sense, the Houthis’ attacks and disruptions in the Red Sea helped the company but failed to excite the investment community. The result was the stock declined more than four percent with many analysts saying the guidance was disappointing.
The price of Maersk’s shares was up more than 20 percent before today’s earnings report as investors anticipated the problems in the Red Sea and elsewhere were helping to drive up freight rates. Reviewing market conditions Maersk said container freight rates had peaked in mid-January and indeed for the quarter they were 23 percent ahead of Q4 2023, but overall they said freight rates remained under pressure down 18 percent year-over-year.
At the same time, costs are increasing due to the additional distances being sailed on many routes. They reported that the rerouting south of Cape of Good Hope led to a higher bunker consumption by 16 percent and higher operating costs by 7 percent compared to Q1 2023.
“Demand is trending towards the higher end of our market growth guidance and conditions in the Red Sea remain entrenched,” CEO Vincent Clerc told investors. “This not only supported a recovery in the first quarter compared to the previous quarter, but also provide an improved outlook for the coming quarters, as we now expect these conditions to stay with us for most of the year.”
Maersk reported a nearly billion-dollar ($956 million) profit from its ocean operations in the quarter (EBITDA) on revenues of just over $8 billion. Overall, the corporation reported on an EBITDA basis a profit of just over $1.5 billion down from nearly $4 billion a year ago, and on a bottom line after taxes, depreciation, and other costs a profit of just $177 million down from nearly $2.3 billion a year ago.
Strong volumes and the longer voyages are helping Maersk to record high capacity utilization with Clerc predicting that the Red Sea issues would continue into the second half of 2024. He however also cautioned that the high number of new vessels delivering this year and next would eventually offset the positive factors and said they expected renewed market pressures.
The pressures extended into other portions of the business with Maersk reporting that while it had significant volume growth in its logistics business, margins were unsatisfactorily low and it had too low utilization in some warehouses. Terminals started the year with good volume growth.
“We therefore relentlessly continue to pursue our cost agenda with the aim of rolling back the disruption linked cost in Ocean and restoring margins in Logistics & Services,” said Clerc. Last year, Maersk announced a large headcount reduction to lower its costs.
The company maintained the upper range of its forecasts for the year reporting that it expects up to $6 billion in profits (EBITDA) while significantly narrowing the range with the low end raised from $1 billion to $4 billion on the profit range. They also shaved the high end of the EBIT loss from an expected $5 billion to just $2 billion while maintaining the top of the range at breakeven for the year. They are also expecting a negative free cash flow of up to $2 billion for the year.
Maersk as the largest publicly traded container shipping and logistics company remains a bellwether for the industry and the broader economy. Investors had hoped for a stronger recovery while the company highlighted a disciplined approach to costs to manage the longer-term market challenges.