MAERSK 2023Q2 earnings review - will things get better for global goods movement?

MAERSK 2023 Q2 EARNINGS REVIEW

MAERSK 2023 Q2 earnings were released in early Aug 2023. Here is a review of the earnings and what it says about the company and the global outlook.

Why do I consider Maersk’s as an indicator of the bigger global outlook?

MAERSK is one of the biggest operators of the world liner fleet at 15.3% as of May 2023, trailing only behind MSC (Mediterranean Shipping Company which leads with 18.6%). They have one of the widest reach and at one point, 20% of the global shipping capacity.

Financial Highlights of MAERSK (consolidated) 

Looking at the highlights above, we can see a notable YoY drop of revenue (consolidated) with ocean revenue suffering the biggest dip of 50% YoY. For the other business units, the drop was much lesser in magnitude.

Observations from the Quarterly Summary of Consolidated MAERSK (YoY) in USD

1. Revenue fell from 2022 Q2’s $21.65B to 2023 Q2’s $12.98B, a significant dip by 40.0%.

2. The underlying profit has dropped from 2022 Q2’s $8.55B to 2023 Q2’s $1.34B, a drop of 84.3%. 

3. A YoY drop of 40% in revenue has led to an 84.3% drop in underlying profits.

4. Despite this, the Free Cash flow (FCF) has gained YoY from $49.195B (2022Q2) to $49.343B (2023Q2), a gain of 0.3%.

Let us look into the biggest business unit - Ocean which accounts for 78.8% of the 2022 total revenue. Ocean is also a good indicator of the global flow of products. Thus, let us look in details the financials of the Ocean business unit.

Ocean financial highlights

Observations from the Quarterly financial highlights of MAERSK’s Ocean (YoY) in USD

1. Total revenue has dropped from $17.41B to $8.703B a 50% drop.

2. Total operating costs have dropped from $7.805B to $6.459B, a 17.2% drop.

3. While there is a drop in total operating costs, the costs remain proportionately higher in comparison to the drop in total revenue. This implies that the fixed costs is relatively higher.

4. Before we conclude this as a major red flag, let us look into the operational metrics.

5. The loaded volume (FFE in ‘000s) has in fact dropped 6.1% (from 3,095 to 2,906).

6. What has affected the revenue largely points back to the drop in Loaded Freight Rate (USD per FFE). It fell from $4,983 to $2,444, a significant 51% drop.

7. This does not mean that there is no concern about volume but a 6.1% drop is still of concern from a 9.1% (YoY) drop from 2023 Q1.

8. Thus, the contribution to the total revenue of Ocean fell 16.7% YoY when we compare 80.42% (2022 Q2) with 67.01% (2023 Q2).

9. This has also implied the drop from other business units of logistics & services, terminals, Towage & maritime services have suffered a lesser magnitude of drop.

10. The YoY Quarterly drop in revenue of the various Business Units can be seen as per the following:

1. Logistics & services fell by 3.3%

2. Terminals fell by 15.5%

3. Towage & Maritime services fell by 13.0%

11. All business units are on declining revenue and it is expected to trend into the 2nd half of the year though the management expressed more confidence for the remaining 2023.

12. May the coming earnings help to prove their view.

Observations from the Balance Sheet (comparing the statement between 31 Dec 2022 and 30 June 2023):

1. Total assets fell from $93.69B to $83.50B (a drop of 10.87%)

2. Total current assets fell from $40.063B to $31.797B (a drop of 20.63%).  Cash and bank balances had a small gain of 3.64% (from $10.057B to $10.423B).

3. Total liabilities fell from $28.648B to $27.073B (a drop of 5.50%)

4. Total current liabilities fell from $13.321B to $12.451B (a drop of 6.53%)

5. Total equities fell from $65.032B to $56.427B (a drop of 13.23%)

6. There is a greater accumulation of liabilities than assets and there is also a bigger loss in equities. 

Conclusion

MAERSK’s outlook seems to be more positive for the remaining 2023. However, we do need to see a reversal of the current downward trend in revenue, profits & net assets. Though the free cash flow remains strong, the actual operational volume is on a downward trend.  This reflects how badly the rates have dropped as seen in Ocean.

I do not think that the outlook is as rosy as promised but MAERSK’s performance can be a good indicator of global goods movement. Let us continue to monitor closely with caution. Let us research before we invest.