-- Maersk adjusts sea-borne freight demand growth forecast to 4%
for 2012 from 4% to 6%
-- Slowing European, U.S. growth weighing on global trade
volumes
-- Maersk raises own earnings guidance on better freight
rates
(recasts, adds executive and analyst comment, details, and
background)
By Flemming Emil Hansen
COPENHAGEN-Danish shipping conglomerate A.P. Moller-Maersk A/S
(MAERSK-B.KO), banking on the ability of shippers to continue
raising freight rates, boosted the outlook for its performance this
year despite considerable caution on the global economy, including
concerns about a U.S. slowdown.
Maersk, the world's largest container shipping company and a key
bellwether for the industry, signalled confidence in its ability to
weather choppy economic seas, but revised down its economic outlook
for the year, warning that slowing economic activity in the U.S.
and Europe are the biggest threats to world trade.
The guidance boost was widely expected by analysts who followed
rate developments closely. The company's concerns about the
sluggish economy, meanwhile, add to growing concerns among big
multi-national companies that are eager to see more robust levels
of global growth after several years of uncertainty.
"We now expect relatively low global growth in the second half
of 2012, and for this we are prepared," Maersk Chief Executive Nils
Smedegaard Andersen said in an interview. "But it could also turn
really bad."
The company pulls in significant revenue from its oil business,
in addition to container shipping.
Maersk said it now expects global demand for sea-borne
containers to increase by 4% in 2012, down from its previous
forecast of between 4% and 6%. Inbound European volumes are now
expected to declining due to pressure from the euro zone debt
crisis.
Maersk Line, with a 15% world market share, is looking to ride
out the storm by relying on continued pricing power. The company
reported a a 4% increase in average freight rates in the second
quarter, including a 14% average rate increase on the key
Asia-Europe trade lanes. The freight rate hikes come following a
wider industry move to back away from engaging in destructive price
wars that were erasing the industry's profit margins.
The shipping and oil conglomerate is using higher freight rates
to offset lower oil and gas production output.
Maersk Line now expects to make "a modest positive result in
2012," compared with its previous view for a "negative to neutral
result" in 2012. But that expectation hinges on the assumption of a
continued improvement of freight rates in the second half of the
year, Mr. Smedegaard Andersen said.
Rates have recovered some of the ground lost in 2011, but they
haven't yet returned to the desired level of 2010, Mr. Smedegaard
Andersen said.
"Rates have risen to a level again that we can live with in the
short term, but it's not sufficient to secure a return on the
industry's large investments. Rates need to go up further,.
Mr. Smedegaard Andersen expects to get little help from the
economy. "The two dominant economies in terms of consumption are
the US and Europe, and slow growth here will result in a slowdown
in world trade," he said, adding that under a worst-case growth
scenario, the company wouldn't be able to meet its new full-year
earnings forecast.
No matter what, Maersk is sitting out any future price wars,
unless they start eating away at Maersk Line's dominant market
position. "We'd like to maintain our market share at the current
level of about 15%. As long as we are around that level, we will
not compete on price to win market share," Mr. Smedegaard Andersen
said.
Maersk's net profit still fell 19% to 5.26 billion Danish kroner
in the quarter from DKK6.54 billion a year ago, though that figure
included a $700 million gain from the sale of a UK supermarket
chain. An average of 10 analysts polled by Dow Jones had forecast
second-quarter net profit at DKK5.56 billion.
Nykredit analyst Ricky Rasmussen said Maersk Line's recovery
during the quarter came in weaker than expected, whereas the oil
and gas producing unit's drop in output was smaller than feared.
"Maersk Oil is absolutely positive, but all other businesses are
somewhat weaker than expected," Mr. Rasmussen said.
Investors, meanwhile, reacted positively in early trade. At 0936
GMT, Maersk's shares traded up 1.1% at DKK41,080.
The rate hikes, along with an 11% increased in the volume of
transported goods, helped Maersk Line hike its second-quarter
revenue 30% to DKK42.34 billion. The group swung to a net profit of
DKK1.27 billion compared to a year-earlier loss of DKK568
million.
Driven by the stronger shipping revenue, Maersk's group sales
rose 11% in the quarter to DKK88.82 billion.
-Write to Flemming Emil Hansen at
flemming.hansen@dowjones.com
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