Atlantic profit recovery boosts CP Ships 2Q results
CP Ships bounced back in the second quarter with a $33 million net profit, up from $3 million a year earlier, as the U.K.-based carrier raised freight rates and profits in its core transatlantic trade.
Operating income climbed to $47 million in the second quarter, representing 4 percent of revenue, up from $26 million or 3 percent of revenue, in the same quarter of 2004.
Revenue soared 18 percent to $1.1 billion, despite a modest traffic growth of 2 percent to 581,000 TEUs. Freight rates have increased in each of the past four quarters, with the latest quarter seeing a rise of about 3 percent when compared to the first quarter. Year-on-year, CP Ships’ average freight rate rose 16 percent to $1,167 in the latest quarter, from $1,003 in the second quarter of 2004.
But the carrier’s total operating expenses also jumped 18 percent, to $1 billion, putting pressure on margins.
CP Ships said its unit cost in the first half increased 14 percent, but suggested its unit costs would not increase much in the second quarter.
Significantly, the company’s operating income from the transatlantic trade more than doubled to $21 million in the second quarter, from $8 million a year earlier. The Atlantic trade had performed poorly last year. The Latin American trade activities of CP Ships reported an operating income of $12 million in the second quarter, up from $5 million a year earlier.
Ray Miles, chief executive officer, said CP Ships’ transatlantic volume declined 2 percent, after the carrier reduced its ship capacity in this trade. But it increased its transatlantic rates 8 percent in the second quarter, when compared to the first quarter. Miles said the July round of transatlantic rate increases has 'also showed some very positive results.”
Its transatlantic revenue rose 15 percent year-on-year to $506 million in the second quarter.
In a conference with analysts Thursday, CP Ships officials did not say whether the big transatlantic operator would add capacity back in the transatlantic after having improved its profitability there.
For the first half of the year, CP Ships increased its group net income to $48 million from $6 million a year ago. It raised its forecast earnings per share for 2005 to $1.30-1.50 per share.
The CP Ships stock closed up 2 percent to $18.49 on the New York Stock Exchange Thursday after the company reported its second quarter results.
Of supply-and-demand trends, Miles said: “There still is a question mark about ‘will we have a downturn in 2006 or 2007?”
“It will be determined by the pace of container demand,” he stressed, adding that industry forecasts in the past have underestimated demand. Miles believes that additional capacity that will enter the market will be “largely” absorbed if demand continues to grow at 12-15 percent a year.
Asked by an analyst to comment on when takeover discussions between CP Ships and CMA CGM could be completed, Miles replied he could not comment on the talks, beyond the short statement issued by CP Ships that is was discussing “a possible transaction.”