Shares of the German shipping giant Hapag-Lloyd AG (DE:HLAG) sank 9.6% yesterday after reporting shrinking revenues for the fourth quarter and full year 2023. An operating loss in Q4 and a significant plunge in 2023 profits also impacted investor sentiment. Hapag-Lloyd had expected poor performance due to the rapid deterioration in average freight weights, the unexpected Red Sea attacks, and low transport volumes.
Hapag-Lloyd is one of the top five shipping and logistics companies in the world. HLAG shares have lost over 30% in the past year, including yesterday’s stock price plunge.
Hapag-Lloyd’s Results
In Q4 FY23, HLAG swung to a pre-tax loss of €200 million from a profit of €3.3 billion in the prior year period. Also, Q4 revenues halved to €3.8 billion compared to the prior year, primarily due to the lower transport volumes caused by the Red Sea attacks. Ships took longer travel times as they had to be rerouted around the Cape of Good Hope.
For the full year Fiscal 2023, revenues declined by 48% to €17.9 billion while both EBIT (earnings before interest and tax) and EBITDA (earnings before interest, tax, depreciation, and amortization) fell by 85.7% and 76.8%, respectively.
The main factor impacting the full-year results was a rapid deterioration in the average freight rates, which declined 48% to €1,500 per TEU (twenty-foot equivalent unit). The company attributed the declining freight rates to the “normalization of global supply chains” in the post-pandemic era. Meanwhile, transport volumes improved marginally by 0.5% to 11.9 million TEU. Hapag-Lloyd will provide the outlook for 2024 and its audited full-year results on March 14, 2024.
The global shipping landscape has changed considerably following the COVID-19 pandemic. After witnessing a massive surge in demand and freight rates due to supply chain constraints, shipping companies are now challenged with a deteriorating environment. To improve its business, Hapag-Lloyd recently announced a partnership with Denmark’s A.P. Moller-Maersk A/S (DE:DP4H), with the aim of transporting 3.4 million containers and achieving a schedule reliability rate of over 90%. The partnership, called Gemini Cooperation, will start its operations in February 2025.
Is Hapag-Lloyd a Good Stock?
Following yesterday’s weak results, some analysts reiterated a Sell rating on HLAG stock. Overall, analysts have assigned a Strong Sell consensus rating to HLAG stock based on the current challenges impacting the sector. This is based on two Holds and nine Sell ratings on TipRanks. The Hapag-Lloyd AG share price target of €103.73 implies 25.7% downside potential from current levels.
