There’s a saying at public companies: “Underpromise and overdeliver.” A.P. Moller-Maersk has apparently taken that credo to heart in 2021.
At the beginning of this year, it introduced initial guidance for 2021 earnings before interest, taxes, depreciation and amortization of $8.5 billion-$10.5 billion.
In April, it raised its EBITDA guidance to $13 billion-$15 billion.
Then on Monday, it hiked it yet again, to $18 billion-$19.5 billion. The midpoint of the new range is double the midpoint of the range at the beginning of this year and 8% above the current consensus estimate of $17.4 billion.
Maersk CEO Soren Skou previously called Q1 2021 his company’s “best quarter ever” — but that record didn’t last long. Maersk reported on Monday that Q2 2021 EBITDA was $5.1 billion on revenues of $14.2 billion. That easily tops Q1 2021 EBITDA of $4 billion.
“The strong quarterly performance is mainly driven by the continuation of the exceptional market situation, with a strong rebound in demand causing bottlenecks in the supply chain and equipment shortages,” said the company.
Q2 2021 ocean volumes increased 15% year on year, with average freight rates surging 59%. In the first quarter, volumes increased 5.7% year on year and rates rose by 35%.
Maersk revised its outlook for full-year demand growth to 6%-8% from 5%-7% previously, “primarily still driven by the export volumes out of China to the U.S.”
The high-water mark reached in the second quarter is unlikely to stand for long. Maersk said that “earnings in the third quarter are expected to exceed the level for Q2 2021.” It added that the “exceptional market situation” is “expected to continue at least until the end of full-year 2021.”
Guidance still too conservative?
Even after two revisions, is Maersk’s guidance still too conservative? First-half results imply that Maersk expects H2 2021 EBITDA of $8.9 billion-$10.4 billion. The midpoint of that range, $9.65 billion, “in our view looks slightly conservative,” said Fearnleys Securities.
At Clarksons Platou Securities, the outlook for Q3 2021 is so strong that Maersk’s results would have to fall significantly in Q4 2021 for the company to keep within its new guidance range.
Clarksons projects Q3 EBITDA of around $7 billion. If that happens, Maersk would beat its latest guidance if it made more than $3.4 billion in Q4 2021. That would mark more than a 50% slowdown in the fourth quarter versus Clarksons’ third-quarter estimate.
According to Clarksons Platou Securities analyst Frode Mørkedal, “Even if the company says ‘the exceptional market situation [is] still expected to continue at least until the end of full-year 2021,’ the actual guidance implies a marked slowdown during Q4 2021.”
The path to ‘new normal’
The timing of container-rate normalization is proving hard to predict. Earlier estimates called for rates to ease after Chinese New Year in February. Then the market was expected to turn mid-year. Now, expectations are shifting to the end of 2021 or early 2022.
According to Jefferies analyst David Kerstens, “Container freight rates continue to set new record highs every week. Freight rates will likely eventually come down, when container demand normalizes and supply chain bottlenecks and capacity constraints ease. Demand for goods is expected to start leveling off as spending on services recovers, but inventory restocking will likely sustain production and container imports.
“Our estimates assume some normalization in the second half of 2021, followed by a decrease to a level in between this year’s record-high freight rates and previous levels, resulting in a normalization at higher-than-expected earnings levels,” said Kerstens.
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