Maersk Adjusts To Weakness in Shipping and Oil Markets

maersk container 2

Danish conglomerate provides boost to investors through a $1 billion share repurchase

A.P. Moeller-Maersk A/S has stepped up its fight for freight-shipping business and abandoned some financial targets for its oil operations as the Danish conglomerate adapts to persistently low crude prices and stiff competition in the cargo market.

Maersk on Thursday also provided a boost to investors through a $1 billion share repurchase. The buyback came as the company reported a more than 50% drop in second-quarter net profit after the prior year’s result was padded by a one-time gain. Second-quarter revenue fell 12% to $10.5 billion.

Maersk Line, the world’s biggest container-shipping operator by capacity, suffered a loss of market share in the first quarter amid growing price competition. Afterward, the company decided to price more dynamically to fight back.

“We will defend our market leading position,” Chief Executive Nils Andersen said on Thursday. The loss at the start of the year was corrected in the second quarter when Maersk focused on retaining its edge, he said, enduring less financial pain than first feared in a period when prices continued to fall.

Mr. Andersen said Maersk would continue to protect its market share, though not aggressively chase a larger position. “Going forward it is realistic that, at a point in time, the capacity situation in Europe will improve, growth will come back and prices will stabilize,” he said in an interview.

Maersk faces stiff competition in the cargo market. PHOTO: PRASHANTH VISHWANATHAN/BLOOMBERG NEWS
Maersk cut its full-year estimate for global freight growth to a range of 2% to 4% from 3% to 5% and said it doesn’t expect a significant rebound to the high-levels seen before 2008.

China’s surprise currency devaluation this week could provide a boost to Chinese exports at a time when Maersk has seen weakness on Asia-Europe cargo flows.

“If we could get some more help on the Asia-Europe volume development, it shall be more than welcome,” Mr. Andersen said, while adding that it was too early to predict the impact.

Maersk said that none of its ships were affected by the warehouse explosion in Tianjin, China, though it was still unsure of the extent of damage to containers and their contents.

Maersk Line contributed $499 million to underlying earnings, down from $543 million a year ago. Maersk Oil added $217 million, down from $315 million.

Mr. Andersen said the company, which maintained its full-year target for the group, decided to set aside several goals for the oil businesses to gain greater flexibility in how it runs those operations.

A target of generating $1 billion in profit in 2018 from drilling and reaching 400,000 barrels of oil output a day by 2020 are no longer priorities, he said. “The world has changed and we need to change with it,” Mr. Andersen said.

The drilling business now is focused on lowering costs until the market situation improves.

In Maersk Oil, the company has decided to cut exploration costs gradually and instead explore acquisitions of oil fields. No attractive acquisition targets have emerged yet, Mr. Andersen said, adding that the share repurchase doesn’t reflect a lower deals appetite, he said.

The company’s oil arm is expected to reduce operating costs 10% by the end of 2015, in line with a 20% cost-reduction target through 2016. Mr. Andersen said that those efforts are showing results, with Maersk Oil’s break-even point below the $55-$60 per barrel range it was only a couple of months ago.

Brent crude traded below $50 per barrel on Thursday.

Source: The Wall Street Journal

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