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The company’s ocean shipping business, its largest segment, performed at a record level in the fourth quarter.
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A.P. Møller-Maersk
stock tumbled early on Wednesday, as the global shipping giant missed earnings estimates and offered a more cautious outlook than expected for 2021, despite surging demand in the fourth quarter.
Unprecedented demand on key routes such as between the U.S. and Asia, coupled with supply-chain bottlenecks and vessel shortages, led to an 18% rise in freight rates during the quarter, Maersk said. Operating profit soared to record levels as a result.
The company sees this continuing into the first quarter of 2021 but expects the situation to “normalize thereafter.” As it signified freight rates were close to peaking, the stock slumped close to 7%.
Shipping demand collapsed in the second quarter of 2020 as the Covid-19 pandemic took hold, before picking up at a faster-than-expected rate in the third quarter, partly driven by a surge in U.S. consumers buying goods from the Far East. The rebound accelerated in the final three months of the year, Maersk said, which in turn generated supply-chain disruptions and higher costs.
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Earnings before interest, tax, depreciation and amortization (Ebitda) grew 85% to $2.7 billion in the fourth quarter, compared with the year-ago period, driven by higher freight rates and lower fuel prices. Volumes rose 3.2%, while freight rates, which have been criticized by the U.S. Federal Maritime Commission, surged 17.7%.
Despite record Ebitda in all three segments of the business, Maersk missed the $3.06 billion analysts’ estimate provided by the company.
The company’s ocean shipping business, its largest segment, performed at a record level in the quarter “as a consequence of the strong rebound of demand which led to full capacity utilization but also to bottlenecks, higher costs and difficulties in meeting our customer reliability promises,” said Chief Executive Søren Skou.
Full-year Ebitda came in at $8.2 billion, toward the middle of the company’s $8 billion to $8.5 billion guidance. That is 49% higher than the $5.5 billion full-year Ebitda that Maersk expected at the start of 2020.
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Maersk sees an even better 2021, expecting global container demand to grow 3-5%, after falling 2% in 2020. The company issued guidance for earnings between $8.5 billion and $10.5 billion, noting the “high degree of uncertainty” due to the impacts of the Covid-19 pandemic. However, the outlook is more cautious than expected—the FactSet consensus sits at $10.4 billion, at the top end of the guidance. In the short term, Maersk expects a strong start to 2021 and said the surging demand would continue, leading to profitability in the first quarter being above that of the fourth quarter of 2020.
Looking ahead. On the face of it, the fourth quarter was a strong one for Maersk as the trade recovery and sky-high freight rates boosted profits. But analysts had expected more and it is a similar picture when it comes to 2021.
The fast-paced recovery of the shipping industry helped Maersk stock rise more than 40% in 2020, but the company’s assumption that demand and freight rates will return to normal after the first quarter has spooked investors. There remain plenty of positives, however, most notably a likely impressive first quarter and the expected volumes recovery continuing in 2021.
