CP Ships raises 4Q earnings, predicts better 2005
CP Ships said Thursday that it increased its net income 14 percent in the fourth quarter, to $32 million, and pleased investors by adding that it expects to “substantially exceed” 2004 earnings this year.
The better fourth-quarter result brought CP Ships’ annual net income to $69 million for 2004, up from its restated 2003 net income of $53 million.
Ending a year marked by accounting errors, CP Ships Ray Miles said of the improved fourth quarter result: “Hopefully it confines our recent problems to the past.”
The container shipping group said an average 12-percent increase in freight rates during the fourth quarter more than offset additional costs from U.S. port congestion, inland transport, expensive vessel charters and the adverse impact of the weak U.S. dollar.
Operating income before exceptional items rose 28 percent to $46 million in the fourth quarter, from $36 million a year ago. While operating income from transatlantic operations declined to $14 million, from $31 million a year earlier, CP Ships’ Asian, Australasian and Latin American operations all raised their operating profits.
Miles said that the task ahead for CP Ships’ management is to keep improving results in its Asian, Australasian and Latin American trades and “reverse the slide that has occurred in the transatlantic.”
CP Ships’ revenue grew 18 percent to $988 million in the fourth quarter, driven purely by a higher revenue per TEU, while the company’s traffic declined marginally to 568,000 TEUs, from 569,000 TEUs in the fourth quarter of 2003.
The company’s shares rose 6 percent, to $13.85 on the New York Stock Exchange Thursday after the announcement of its results.
The group’s cost per TEU increased 17 percent to $1,556 in the fourth quarter of 2004, compared to $1,329 in the same period 2003. Inland transport, other variable expenses and fixed costs each represented about one third of the increase.
The U.K.-based group said it incurred $5 million of unusual charges during the latest quarter, including a $2 million payoff to former chief executive officer Frank Halliwell, who left the company in December “due to differences with the board on future direction of the company.”
Congestion at marine terminals and a shortage of rail and truck capacity in North America and Europe continued to have an adverse impact on operations during the quarter. In particular, CP Ships experienced significant congestion at Los Angeles affecting several of its West Coast services. In addition, terminal congestion increased at ports on the East Coast of South America and in India.
For the year, CP Ships reported an operating income before exceptional items of $124 million, or 3 percent of revenue, compared to $92 million, or 3 percent of revenue, in 2003.
The group’s latest results suggest that it has not shared in the profitability boom of the industry to the same extent as Asia-based carriers.
However, CP Ships’ Asian operations increased their revenues 28 percent to $813 million in 2004, faster than the company’s overall revenues, which grew 17 percent to $3.1 billion.
The group carried 2.3 million TEUs in 2004, 4 percent more than in 2003.
CP Ships’ Canada Maritime and Cast units have trimmed capacity on the Montreal/northern Europe “route 3” service by introducing smaller ships.
“We are working on other plans that might tighten capacity further,” Miles said. “We think there may be other opportunities to reduce supply (in the Atlantic) through rationalization of capacity.”
In 2005, CP Ships expects slow growth in the transatlantic.
CP Ships-controlled carriers raised eastbound and westbound transatlantic freight rates last October. The group is planning further rate increases in April and October.
CP Ships also expects to raise freight rates in other trades this year, including the Latin American trades.
CP Ships faces six class action lawsuits filed in the U.S. and three in Canada, after the company said it had made accounting errors in financial results for 2002, 2003 and the first quarter of 2004. CP Ships said that these proceedings are at a preliminary stage and to date no class has been certified and no consolidated claim has been filed. The proceedings allege claims against CP Ships and certain of its directors and officers arising from the restatement.
“CP Ships has retained counsel and is in the process of defending these claims,” the company said.
Commenting on supply and demand trends in the industry, CP Ships said that increasing demand this year is expected to absorb additional ship capacity. CP Ships also cited industry forecasts showing that the global boxship fleet will expand 16 percent in 2006 and 12 percent in 2007.
Miles described these figures as “hefty increases in supply.” He repeated his view that “any blip” in demand growth, which has been strong until now, would lead to an industry downturn “probably in 2006.”