The Danish shipping conglomerate attributed the decline to lower freight rates at Maersk Line and lower oil prices for Maersk Oil, leading the company to downgrade its full-year profit projection for 2015.
The A.P. Moller Maersk Group posted a profit of $778 million in the third quarter ending Sept. 30 compared with nearly $1.5 billion in the same 2014 period, according to the Danish shipping conglomerate’s most recent financial statements.
Underlying profits for continuing business, which eliminates the net impact from divestments and impairments, stood at $662 million in the third quarter this year compared with $1.28 billion in the third quarter of 2014.
Revenues were $6 billion in the third quarter this year, down from $7.1 billion in the same 2014 period.
The company attributed the decline primarily to the effect of falling container freight rates, which caused underlying profits for its Maersk Line unit to fall 63.1 percent to $243 million in the third quarter, as well as the effect of lower oil prices on its Maersk Oil division, which saw profits drop a whopping 85.7 percent year-over-year to $32 million.
APM Terminals also saw a decline in underlying profits to $175 million in the third quarter from $201 in the third quarter of 2014.
For the full year, Maersk is predicting that combined profits for the group will be $3.4 billion instead of the $4 billion it was forecasting as recently as its “capital markets day” meeting with investors on Sept. 9. Maersk Line is now expected to post a full-year profit of $1.6 billion.
Nils Andersen, the conglomerate’s chief executive officer, said the third quarter result is something “we are not 100 percent happy with, but it comes after a third quarter in which we are seeing oil prices down 50 percent and freight rates down 20 percent compared to the same period last year.”
Maersk said average freight rates fell to $2,163 per FEU in the third quarter compared with $2,679 in the third quarter of 2013. Volumes were up 1 percent, and bunker costs were down 44 percent to an average of $324 per ton in the third quarter from $575 per ton in the same 2014 period.
Anderson noted that despite the challenging conditions “all business units delivered positive results.”
Meanwhile, Maersk Line announced earlier this week it would cut 4,000 jobs by the end of 2017, reduce capacity by canceling a further 35 sailings this year on top of 4 strings that have been idled this year and not exercise options it had with shipyards to build six 19,630-TEU containerships and two 3,600-TEU feeder ships. It also said it is postponing a decision on whether to build eight more 14,000-TEU vessels.
But Andersen said Maersk is “not changing our goal to grow at least in line with the market and defend our market-leading position, but given lower growth expectations, the capacity orders we have in place are good for now.”
“The reason why you divide an order with a shipyard into firm orders and options is, of course, you want to see how a market develops. When we are coming to a situation now that we know the market in 2015 will grow with a lower rate than we expected at the beginning and middle of the year, and also have a somewhat conservative view on immediate freight rates, it actually is natural to not to take the options. It just reflects that there is nothing that has changed to the positive since we decided to take the option.”
“There is no drama is this, it is not a reflection of earnings or whatever, it is just that we think we can order these ships slightly later and fit them into a lower growth expectation for the market,” added Anderson.
He noted Maersk has grown capacity by six percent this year, but volumes are up only one percent, so the company has flexibility and ability to grow with its existing fleet.
“Our experience is, if you grow with a network that is too large for your need, you have a hard time making money,” he said. “Rest assured, that we were be ready to fulfill our market share goals with the capacity we have ordered.”
Asked how Maersk Line will still be able to grow when it is taking 4,000 jobs out of an organization of 23,000 employees, Andersen said the plan is “not something that comes out of blue air or something that we pull out of a hat because we did not meet our expectations in Q3.”
“These are plans that come out of quite a lot of activity in the past years and quite a lot of investments in digitizing the business. With increased digitization, you need less people for the handling of documents and so on. This is a very important driver. It is more making public plans internally and externally that have been some time in the making.”
Maersk Group reports lower Q3 profits, revenues
