A.P. Moeller-Maersk A/S raised its full-year profit forecast after the company’s container-shipping line, the world’s largest, said earnings are rising because of higher freight volumes and lower costs.
Earnings excluding discontinued operations, impairment losses and divestment gains will total $4.5 billion compared with a previous forecast of $4 billion, Copenhagen-based Maersk said today in a statement. The stock rose the most in a year after the company said it’s planning its first share buyback.
Maersk Line, which transports about 15 percent of the world’s containers, has been battling industry overcapacity after a boom in ship orders that coincided with the global recession triggered the worst price slump since containerization became global in the 1970s. The unit also raised its 2014 forecast today, saying net operating profit after tax will “significantly” exceed last year’s $1.5 billion, versus a previous forecast of a figure “above” that level.
“It’s impressive that Maersk Line can continue to lower costs,” Jesper Langmack, head of investments at Copenhagen-based pension fund PFA, which owns about $450 million of Maersk stock, said in an e-mailed statement. “It’s certainly positive news that Maersk chooses to launch this share buyback. It’s a good signal that management constantly seeks to create value for shareholders.”
Maersk jumped as much as 5.6 percent, the steepest intraday gain since Aug. 16, 2013, and was trading up 4.7 percent at 14,140 kroner as of 11:52 a.m. in Copenhagen. The stock has risen 20 percent this year, compared with a 2 percent advance in the Stoxx Europe 600 Index.
The company will buy back shares for about $1 billion in the next 12 months as Maersk’s capital structure is “almost too strong,” Chief Executive Officer Nils Smedegaard Andersen said in a Bloomberg Television interview. It will be the first “formalized” buyback in the company’s 110-year history, and it won’t reduce dividend payments, he said.
“We find it highly positive that they show clear commitment to return on capital and distribution of this to shareholders through share buybacks and dividends,” Frode Moerkedal, an analyst at RS Platou Markets, said in a report to clients, reiterating a buy recommendation on the stock.
Supply and demand in the container market will continue to be unbalanced in the short and medium term because some shipping lines are still “too aggressive” in adding capacity, CEO Andersen said.
Second-quarter earnings before interest, tax, depreciation and amortization rose 9 percent to $3.09 billion, beating the $3.05 billion median estimate of four analysts surveyed by Bloomberg News. Maersk Line’s net operating profit after tax jumped 24 percent to $547 million. Volume increased 6.6 percent, while costs declined by 4.4 percent in the quarter.
“We expect the container market recovery will drive the stock over the next three years with the container market at its trough,” analysts at DnB Markets, including Nicolay Dyvik, said in a note to clients, sticking to a buy recommendation.
Maersk also raised profit forecasts for its oil-exploration and port-terminal divisions.
The oil unit, which posted a $1.7 billion writedown on its Brazilian assets last month, will report an underlying profit in 2014 in “line with” last year’s $1 billion, compared with a previous forecast for declining earnings, Maersk said. Profit will be helped by higher oil prices, which Maersk says it sees at $108 per barrel compared with $104 a barrel previously.