Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- A. P. Moller Maersk A/S (AMKAF, Financial) reported strong market demand leading to volume growth across all segments.
- The company achieved an EBITDA of $2.1 billion and an EBIT of $1 billion, demonstrating agility and adaptability.
- Logistics & Services saw organic growth momentum and a sequential rebound in EBIT margin to 3.5%.
- Terminals segment delivered one of the highest EBITDA levels ever, driven by higher volumes and ancillary revenues.
- Raised guidance for 2024 to an underlying EBITDA of $9 billion to $11 billion and an underlying EBIT of $3 billion to $5 billion, with a free cash flow of at least $2 billion.
Negative Points
- The EBIT margin in Logistics & Services, although improved, is still below the target of 6%.
- The ongoing disruption in the Red Sea has led to constrained vessel capacity and port congestion.
- Higher spot rates have not yet fully materialized into higher realized rates in the Ocean segment.
- There is uncertainty about the extent to which strong volume demand will hold up into Q4, adjusted for normal seasonality patterns.
- The company faces significant and potentially sticky extra costs to maintain cargo flow fluidity, including higher charter rates and more equipment needs.
Q & A Highlights
Q: What factors give you confidence that freight rates will not return to pre-Red Sea disruption levels by October?
A: Patrick Jany, CFO: The uncertainty lies in the volume, particularly how much has been pulled forward. We do not see rates returning to pre-Red Sea levels in Q4 but expect a sequential reduction. The contracted rates provide a buffer, and Q3 will be the peak of the year due to increased contract rates and revenue recognition effects.
Q: Can you elaborate on the new system to increase productivity in Logistics & Services?
A: Vincent Clerc, CEO: We are rolling out new digital platforms to improve productivity and features for customers. Improvements in asset utilization and ongoing progress in Ground Freight will help lift margins towards our 6% EBIT target.
Q: What portion of contract volumes have higher rates, and how do they compare to spot rates?
A: Patrick Jany, CFO: Contract rates have been adjusted to higher levels, but there is a time lag. Spot rates have eroded slightly, and both lines will converge over time. The adjusted contract rates will drive profitability in Q3.
Q: Can you elaborate on the dynamics behind the reduction in unit costs despite higher fuel consumption?
A: Vincent Clerc, CEO: The key driver is asset utilization at 97%. We have secured the necessary capacity and can manage costs by adjusting sailing speeds. Time charter rates are high but not significantly impacting costs at this stage.
Q: What factors contributed to the strong volume performance in Q2, and do you expect another peak season?
A: Vincent Clerc, CEO: Growth is driven by Europe and emerging markets, not North America. There is a cyclical replenishment of inventory in Europe and a rebound in consumption in emerging markets. We expect strong volumes in Q3 and a normal seasonal taper in Q4.
Q: How strong a balance sheet do you need to withstand a prolonged downturn in the Ocean business?
A: Patrick Jany, CFO: We need a strong balance sheet to invest in fleet renewal, Logistics, and Terminals. We will assess the supply and demand balance in Q4 and decide on capital allocation, including potential share buybacks.
Q: Can you provide details on the fleet renewal program and the division between owned and chartered vessels?
A: Vincent Clerc, CEO: We aim to maintain a fleet size of 4.3 million TEUs, matching new tonnage with scrapping. We expect 500,000 TEUs on long-term charter and 300,000 TEUs owned. Most orders are placed or will be soon.
Q: Why are you placing orders for conventional dual-fuel ships instead of methanol ships?
A: Vincent Clerc, CEO: We need to hedge our bets on technology due to uncertainty in fuel availability, price, and regulatory regimes. We will continue with methanol but also invest in other propulsion technologies to remain competitive.
Q: What is the likelihood of an East Coast strike, and what impact would it have on your business?
A: Vincent Clerc, CEO: A strike is highly unlikely based on historical patterns. If it happens, it could create significant delays and capacity absorption, impacting a major trading route.
Q: What is driving the margin improvement in the managed revenue segment of Logistics?
A: Patrick Jany, CFO: The improvement is due to a better mix of business, focusing on more profitable segments. We expect profitability to level off at current levels and focus on growing the business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
