CMA CGM ‘confident’ in Q3 outlook after profitable Q2

CMA CGM ‘confident’ in Q3 outlook after profitable Q2

CMA CGM joined most of its peers in reporting a solid second quarter, and expects to take that momentum into Q3. Photo credit: Shutterstock.com.

CMA CGM reported a strong improvement in profitability for the second quarter, despite a sharp drop in revenue and volume, and is expecting the container shipping recovery to build further through the third quarter.

“The group is confident in its business outlook for the third quarter of 2020,” CMA CGM said in its second-quarter earnings announcement Friday. The carrier noted that rising consumption of goods, growing demand for e-commerce, and peak season demand was the driver behind high rate levels seen on most trades, and particularly on trans-Pacific routes.

“The current strong momentum of the shipping market, driven by both volume and freight rates, should allow the group to further significantly improve its operating margin compared with the second quarter,” the carrier said.

CMA CGM continued a trend seen across most of the major carrier results: falling revenue and volume, but rising profitability. Volume carried in the second quarter fell 13.3 percent to 4.78 million TEU, 735,000 TEU fewer than the same period last year. It was the first quarterly drop in volume since 2009 and dragged group revenue down 9 percent to $7 billion.

However, stronger rates, lower fuel costs, and adapting capacity to customer needs was able to offset the falling revenue and deliver results that group chairman and CEO Rodolphe Saadé labeled as “excellent.”

“Thanks to our agile business model and synergies between our shipping and logistics business activities, we were able to adapt our service offerings to meet our customers’ fast-changing needs,” he said. 

CMA CGM group, which includes CMA CGM and CEVA Logistics, reported Q2 earnings before interest, taxes, and depreciation (EBITDA) of $1.2 billion, up 26 percent year over year. Group net profit was $136 million compared with a second quarter loss in 2019 of $109 million.  

Capacity cuts match falling demand

The shipping sector of the group saw revenue falling almost 11 percent in the second quarter to $5.3 billion, although EBITDA was up 30 percent to just over $1 billion. That growth in operating profit can be attributed to average revenue per TEU rising almost 3 percent year over year to $1,112, the unit cost per TEU falling almost 5 percent because of lower fuel prices, and the ability of the carrier to rapidly cut capacity to match falling demand.

CEVA Logistics reported a 4.7 percent drop in second quarter revenue to $1.7 billion, and a 4.1 percent improvement in EBITDA to $153 million. CEVA’s warehousing and air freight business made a positive contribution to CMA CGM earnings as the carrier faced coronavirus disruption through the second quarter. 

The improved performance of CEVA helped offset the decline in ocean freight and cut the logistics division’s net loss to $1 million in the second quarter compared with $32 million in the same three months last year.

A key consideration of the CMA CGM Group has been to improve its liquidity, with the carrier emerging from 2019 with debt levels of $17.8 billion. It said in its earnings statement that the second quarter had generated operating cash flow of $1.1 billion, with liquidity further strengthened by securing a $1.1 billion guaranteed bank loan, $354 million of which was allocated to CEVA Logistics.

CMA CGM said its liquidity position, encompassing available cash and undrawn credit lines, totaled $2.6 billion at June 30, “allowing the group to comfortably meet future financial obligations.” 

But the carrier left the door open should additional funding be required. “CMA CGM continues to proactively evaluate all potential options to strengthen its financial structure, which may include refinancing opportunities across all available funding sources,” it said.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.