Shipping Giant Maersk Launches $5 Billion Share Buyback After Record Quarter. The Stock Is Surging.

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The shipping giant Maersk is seen as a bellwether for the global economy.

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A.P. Moeller-Maersk

stock jumped more than 5% on Wednesday, as the Danish shipping giant launched a $5 billion share buyback program after record profits in the first quarter.

The company said its “exceptionally strong” performance in the first three months of 2021 was driven by strong demand and surging freight rates. Global demand has soared in recent months as the economic recovery from the Covid-19 crisis has gathered pace.

Freight rates were driven up in the first quarter by bottlenecks, lack of capacity and equipment shortage in the global supply chain, Maersk Chief Executive Søren Skou said in a statement.

He expected the current dynamics to last into the fourth quarter, justifying its guidance, which was upgraded last week, and paving the way for further buybacks.

Maersk announced plans on Wednesday to accelerate the remaining $1.1 billion in its current buyback program, to now be completed by September, before launching an additional program worth Danish krone 31 billion ($5 billion) over two years.

Read:Maersk Boosts Profits as Global Demand Surges

The shipping giant, seen as a bellwether for the global economy, said revenue increased by 30% to $12.44 billion in the first quarter, confirming its trading update last week and beating the FactSet analyst consensus of $12.31 billion. Freight rates rose 35% in the quarter, while ocean volumes grew 6%, mainly due to shipping demand out of Asia to the west.

Earnings before interest, tax, depreciation and amortization (Ebitda) surged 166% to $4.04 billion, driven by the company’s ocean segment and beating estimates of $3.9 billion.

First-quarter profit of $2.72 billion almost equaled the company’s profit for the whole of 2020 of $2.9 billion.

Maersk had expected the exceptional market conditions to normalize after the first quarter, but now sees that continuing well into the final quarter of the year.

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As a result, the company significantly upgraded its guidance last week, expecting underlying Ebitda of $13 billion to $15 billion for the full year, compared with $8.3 billion in 2020 and up from an initial forecast of $8.5 billion to $10.5 billion. It also raised its forecast for global container demand growth to 5% to 7%, from 3% to 5%, citing export volumes out of China to the U.S.

Looking ahead. The stock was given a lift by the raised guidance last week, but the earnings and share buyback announcements have provided a real boost, sending the shares up 5.2% to DKK 15,775.

Citi analysts saw the new buyback program as a positive, maintaining a buy rating on the stock with a target price of DKK 19,130. They added that the company’s shift toward more long-term and multiyear contracts was another plus point, increasing earnings visibility.

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