Maersk Warns of ‘Considerable Uncertainties’ From Trade War

(Bloomberg) --

A.P. Moller-Maersk A/S, the world’s largest container line, said it had a good start to the year but warned that “considerable uncertainties” stemming from global trade tensions will probably hurt its business.

“New tariffs can potentially reduce expected growth in global container volumes by up to 1 percentage point,” the Copenhagen-based company said on Friday.

Read More: Trump Wields a More Powerful Weapon Than Tariffs for Trade War

Maersk, which also unveiled plans to buy back $1.5 billion in shares over a 15-month period, said it is sticking with its guidance for the full year despite “weaker macro numbers as well as the risk from trade tensions.” The company cited tougher fuel requirements designed to protect the environment as an additional challenge.

Click here to see what analysts are saying about Maersk’s 1Q report

Shares in Maersk traded slightly higher in the Danish capital. The new buyback program “is positive and slightly better than our expectation that $1 billion of the Total SA share sale would be returned to shareholders,” Frode Morkedal, managing director at Clarksons, said in a note to clients.

Click here for more details from Maersk’s first-quarter results

Maersk, which transports about a fifth of the world’s manufactured goods by sea, faces a serious threat to its business as the trade war between the U.S. and China intensifies. Chief Executive Officer Soren Skou said on Friday that volumes on trans-Pacific trade between Asia and North America have already shown signs of decline. Maersk also revealed that global container trade grew just 1.7% in the first quarter from a year earlier. That compares with 3.6% for all of 2018.

Read More: Trade War Escalation Puts 2H19 Global Trade Recovery at Risk

“The moderation of container demand growth reflects a broad-based slowdown in all the main economies,” Maersk said.

Friday’s report was Maersk’s first as a pure transport company, after it ended its conglomerate structure earlier this year. It’s using some of the proceeds from the sale of its oil exploration activities to finance the share buyback program. Maersk also said it will introduce a new dividend policy, with an annual payout ratio of 30%-50% of underlying net profit.

The company’s net interest-bearing debt fell to $12.6 billion at the end of the quarter from $15 billion three months earlier, helped by cash proceeds from the sale of shares in Total that it received in exchange for its oil activities.

Maersk said it may distribute more proceeds to shareholders after the $1.5 billion buyback is completed, but only if doing so doesn’t jeopardize its investment grade rating. It has a BBB grade at S&P and a Baa3 at Moody’s.

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• See Maersk’s 1Q statement here
• Read the Bloomberg Intelligence 1Q preview here

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