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Maersk soars after profit drops less than expected

Copenhagen - AP Moeller-Maersk rose the most in two-and-a-half months after reporting a smaller decline in first-quarter profit than estimated following deeper cost cuts at its oil unit.

Net income was $211m last quarter compared with $1.54bn a year earlier, the Copenhagen-based company said in a statement on Wednesday. That compares with a median estimate of $38mn in a Bloomberg survey of seven analysts.

The company’s shares gained as much as 6.7% and traded 5.6% up at 9 185 kroner as of 10:06. Maersk is up about 2% this year. Wednesday’s gain is its biggest since February 15.

The results were “not as bad as feared following cost savings,” David Kerstens, an equity analyst at Jefferies International, said in a note. “We think there’s light on the horizon with the current turmoil in the container shipping industry potentially resulting in the elimination of industry overcapacity.”

“While market conditions remain challenging, we continue to adjust our cost base to the new conditions and maintain a good operational performance across our businesses,” chief executive officer Nils Smedegaard Andersen said in the statement.

Thanks to its cost cuts, Maersk Oil “now expects a breakeven result to be reached” with an oil price of $40 to $45 per barrel, compared with $45 to $55 previously, it said. “Previous guidance was a negative underlying result,” it said.

Maersk Oil reported a net operating loss after tax of $29m in the quarter, compared with a profit by the same measure of $208m a year earlier. The loss was smaller than the $58m predicted in a survey by Ritzau.

The unit, which has cut 1 300 jobs, targets cutting costs by 20% by the end of this year, compared with 2014 levels. It said Wednesday that operating expenses, excluding exploration costs, fell 21% in the quarter. The unit was helped by higher production as well as deferred income from UK tax breaks.

Maersk Line, the group’s largest unit and the world’s biggest container company, reported a net operating profit after tax of $37m, down from $714m in the first quarter of 2016, as freight rates declined 26% on average.

The first-quarter results “were a relief,” according to Frode Moerkedal and Herman Hildan, analysts at Clarksons Platou Securities AS in Oslo. “Maersk Line was still in the black despite record low freight rates and the company probably took market share.”

“The main surprise from the report was cost reductions seen in Maersk Oil and Maersk Drilling, and both companies reported significantly better operating profits than expected,” they said.

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