Maersk starts $1.6 billion share buyback as guidance raised

A.P. Moller-Maersk A/S has launched a $1.6 billion share buyback program, as the world’s biggest container shipping company says the Covid crisis has so far dented its business less than feared.

Copenhagen-based Maersk, which late on Tuesday raised its guidance for a second time since October, reported a 39% increase in Ebitda to $2.3 billion in the third quarter. Profit by that measure, before restructuring and integration costs, will reach $8 billion to $8.5 billion this year, it said. Previous guidance was for $7.5 billion to $8 billion.

The global economy was “still severely impacted” by the pandemic last quarter, Maersk said in a statement on Wednesday. “However, volumes have decreased less than expected.” The company also said “costs were kept well under control and freight rates have increased.”

Maersk transports about a fifth of the world’s containers, giving it a unique view of the state of international trade. Global container volumes increased by around 1% last quarter, which is better than Maersk expected earlier this year, it said. Freight rates rose around 4.4%, on average, from the previous year.

“Very strong results, of course, but again somewhat lower than we had expected given observed freight rate developments,” said Frode Morkedal, managing director at Clarksons Platou in Oslo. The improved guidance was also “less than expected,” he said.

Looking Into 2021

Shares in Maersk fell about 1.3% as of 9:15 a.m. in the Danish capital, after opening as much as 1.9% higher when trading started on Wednesday. The benchmark index in Copenhagen was little changed.

In an interview with Bloomberg TV’s Anna Edwards, Chief Executive Officer Soren Skou said the surge in freight rates is “of a temporary nature.”

“I certainly don’t think that prices will continue to rise,” the CEO said. “We think things will calm down and normalize in 2021.”

And despite its profit upgrade, Maersk warned that “the trading conditions and the outlook remain subject to a higher than normal volatility given the disruptions caused or potentially being caused by Covid-19.”

The outlook for global trade and the world economy hangs in the balance as the pandemic cements its grip across the northern hemisphere. At the same time, scientists are moving closer than ever to developing a vaccine, potentially laying the foundation for an economic rebound in 2021.

David Kerstens, an analyst at Jefferies, said container demand is “expected to be supported by record-low U.S. retail inventories for the next two to three quarters,” in a note published before Maersk released its results on Wednesday. “Upcoming fixed price contract renewals will likely be at materially higher rates.”

Maersk should now have a “war chest” of about $12.5 billion it can use for acquisitions and share buybacks without jeopardizing its investment grade rating, the analyst said. The company will mainly target takeovers in the land-based container logistics industry, Kerstens said.

Meanwhile, Maersk is trimming its organization to adapt to the challenges it faces. The company took restructuring costs of just over $100 million in the third quarter related to around 2,000 job cuts, as it reorganizes its ocean and logistics and services operations.