Denmark’s AP Moller-Maersk announced the first share buy-back in its 110-year history yesterday as an overhaul of the sprawling shipping and oil empire leaves it with more cash than it can usefully invest.
Maersk shares jumped 5 per cent after the company reported better than expected quarterly earnings and raised its 2014 profit guidance, as cost cuts at its container shipping arm help it navigate persistent weakness in the global economy.
“The share buy-back programme further underlines that the company has increased its focus on shareholders – this is a great signal,” said Sydbank analyst Jacob Pedersen.
Maersk said it would buy $1 billion of its shares in the 12 months from September 1 and would consider further buybacks in coming years.
The largest container shipping company in the world and Denmark’s second-largest company by market capitalisation, Maersk suffered its first ever full-year loss in 2009 as the global economy slid into recession.
Under pressure to prove its diversified business model can work for shareholders, it has slashed costs and moved to focus on four businesses – container shipping, port terminals, oil exploration and production and oil drilling.
The conglomerate once owned businesses as varied as supermarkets, a small airline and liquefied natural gas tankers.
“The launch of the share buy-back programme came earlier than I had expected, but given the company’s strong financial position it makes good sense to start now,” said Nykredit analyst Ricky Rasmussen.
“If they make no acquisitions, I could imagine they would announce more share buy-backs already in the full-year report.”
Maersk raised its 2014 earnings guidance for the second time this year. It now sees underlying profit, excluding discontinued operations, impairment losses and divestment gains of $4.5 billion, above a previous estimate of $4 billion.
Boosting the results, container shipping arm Maersk Line expects to earn profits “significantly” above those of 2013.
The business has been saving on bunker fuel costs by using its vessels more efficiently.
Maersk Line is also trying to make the most of its vast network of vessels and routes by sharing vessels with the world’s second-largest shipper, privately-owned MSC Mediterranean Shipping Co.
The two companies hope such an agreement, which would span major global routes, would further cut costs and fuel use. They are in the processes of submitting the plan to regulators and expect it to go ahead in the first half of 2015.
The share buy-back programme further underlines that the company has increased its focus on shareholders
Maersk failed to push through a similar concept with MSC and a third company last year after China blocked the idea, fearing higher end prices for customers.
Many of Maersk’s rivals are struggling to improve their results in the sluggish market. Germany’s Hapag-Lloyd said it expected operating profit to drop this year while Singapore-based Neptune Orient Lines Ltd posted larger losses in the second quarter.
Maersk’s profit in the second quarter rose to $2.25 billion, beating the average forecast of $2.21 billion in a Reuters poll of analysts.
The result reflected a $2.8 billion gain from the sale of Maersk’s majority share in Dansk Supermarked and an impairment of $1.7 billion on Brazilian oil assets, which had not performed as well as it expected.
Maersk Line earned profits of $547 million, which were helped mainly through a 4.4 per cent reduction in unit costs on better efficiency in its bunker fuel use and also thanks to a 6.6 per cent increase in volumes.