Earnings are expected to plunge by up to 78% in 2023

A.P Moller-Maersk, operator of the world’s second-largest container line, announced fourth-quarter results in line with expectations on Wednesday. But its outlook for 2023 came in below consensus, with rates expected to be particularly weak in the second half of the year.

Maersk sees spot rates now stabilizing. It expects contract rates to be negotiated for 2023 at levels close to spot rates, bringing average rates down, particularly after the benefits from contracts negotiated in 2022 expire.

Even though second-half volumes could recover somewhat as retailer inventories normalize, rates will face pressure from higher shipping capacity as a wave of new vessels hit the water in H2 2023 and through 2024.

“It certainly means lower profitability or very low profitability for ocean in the second half of the year,“ said Maersk CFO Patrick Jany on Wednesday’s conference call with analysts.

Maersk Q4 2022 results and 2023 outlook

Maersk reported net income of $4.98 billion for Q4 2022, a 44% plunge from the record-setting third quarter and down 18% year on year.

The company had previously forecasted adjusted earnings before interest, taxes, depreciation and amortization of $6.7 billion for the fourth quarter; analysts polled by Bloomberg expected $6.4 billion. Actual adjusted EBITDA came in at $6.54 billion.

Maersk released its initial guidance for this year: for adjusted EBITDA of $8 billion-$11 billion. That would be a massive 70%-78% drop from the $36.8 billion EBITDA in 2022, but still 40%-93% higher than the EBITDA of $5.7 billion in 2019, pre-COVID.

The consensus had been for full-year adjusted EBITDA of $11.6 billion, with Deutsche Bank at $13.6 billion. (After the conference call, Deutsche Bank slashed its outlook to $9.6 billion.)

Steeper-than-expected import drop

Maersk reported an average rate of $3,869 per forty-foot equivalent unit in Q4 2022. That’s down 23% sequentially from the all-time high in the third quarter, and down 3.5% year on year.

Maersk has 70% of its long-haul volumes on annual contracts. Jany noted that the Q4 2022 drop in average rates was “almost entirely due to falling shipment [spot] rates,” implying that Maersk did not reduce annual rates mid-contract.

The company moved 2.8 million FEUs of cargo in the latest period, down 14% year on year and 7% quarter on quarter. Maersk CEO Vincent Clerc acknowledged that the company underperformed the overall industry, which saw volumes drop around 10-11% year on year in the fourth quarter.

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