K+N's operating profit nearly halves, Red Sea crisis to impact in second quarter

(Reuters) -Swiss logistics group Kuehne+Nagel reported a 49% drop in annual operating profit on Friday, driven by weakness in its ocean freight segment and higher costs, and said it expected an impact from the Red Sea crisis in the coming quarters.

The Red Sea crisis is an ongoing situation and the company will see an impact in the third quarter and at the end of 2024, Chief Executive Stefan Paul told an analysts' call, adding that the crisis did not affect fourth quarter results.

"The crisis will impact Q2 EBIT in a low double-digit million Swiss francs range," Stefan Paul added.

Shares in the group fell nearly 15% at one point after it said operating earnings nearly halved to 1.90 billion francs last year, missing analysts' consensus forecast of 2.01 billion francs. K+N also reported a 55% and 52% drop in operating profit at its sea and air logistics businesses respectively in the final quarter of 2023.

The shares were down 12.6% by 1540 GMT.

Analysts have said higher rates offer only a temporary uplift for shipping firms, as underlying issues such as low demand and excess freight capacity keep weighing on the sector.

"Our expectation is that estimates for future years will move lower, with the Red Sea situation producing only a small earnings boost," J.P.Morgan wrote.

Both J.P.Morgan and Bernstein analysts noted that most of the earnings miss seems to have come from the sea freight business that recorded both lower yields and conversion rate.

The ocean shipping industry is bracing for months of upheaval, as disruption caused by Houthi rebels in the Red Sea lifts costs on sea freight shipping across the globe, while attempts to reroute shipments may cause a shortage of vessel space and send short-term transport prices sharply higher.

Kuehne+Nagel didn't provide a 2024 outlook due to current geopolitical tensions and high volatility in the long term.

HIRING FREEZE

The company, which operates in more than 100 countries, said it had adjusted its cost base in the fourth quarter in response to the tougher market conditions, resulting in one-off redundancy costs of 53 million francs ($59.84 million).

That included laying off less than 2% of its global workforce, a company spokesperson told Reuters.

Stefan Paul said during the conference call that the company has recently implemented a complete hiring freeze, expecting no new hires except for only critical replacements.

The transport and logistics operator proposed a nearly 30% cut to its annual dividend to 10 francs per share compared to a year earlier.

($1 = 0.8857 Swiss francs)

(Reporting by Anastasiia Kozlova and Amir Orusov in Gdansk; additional reporting by Oliver Hirt in Zurich; editing by Milla Nissi, Elaine Hardcastle and Susan Fenton)

By Anastasiia Kozlova and Amir Orusov