What happened
Shares of Israel's ZIM Integrated Shipping Services (ZIM 16.07%) stock tumbled 6.66% through 10:55 a.m. ET after reporting a big earnings miss on Wednesday.
Heading into Q2 2023, analysts weren't overly optimistic about ZIM, predicting an $0.88 per share loss on sales of $1.35 billion. Unfortunately, ZIM failed to clear even this low bar, as revenue sailed in light at just $1.3 billion. Even worse, losses were more than twice as bad as feared: $1.79 per share.
So what
ZIM's results illustrate the sometimes extreme cyclicality of the container shipping industry. Whereas one year ago, ZIM was riding high atop a $1.3 billion net profit for Q2 2022, this time around the company sank into a $213 million loss. Management blamed "a non-cash after tax item of $51 million related to the redelivery of certain vessels" for part of the loss. But really, the deciding factor here was a precipitous plunge in container shipping rates, which declined as much as 75% between June 2022 and June 2023, for example.
That decline is the real reason why, despite growing slightly the amount of cargo it shipped in the quarter, ZIM's revenue in Q2 2023 still declined 62% year over year -- and why ZIM's profits got vaporized.
Now what
ZIM CEO Eli Glickman assured investors that the company is continuing "to take proactive steps to respond to current market realities, with a focus on minimizing costs," but he doesn't expect these steps to really start showing up in ZIM's results before perhaps early 2024.
In the meantime, investors should probably batten down the hatches for a rough 2023. ZIM forecasts operating losses of anywhere from $100 million to $500 million before the year is done, and real net GAAP losses could be even higher.
Don't be fooled by the stock's apparently cheap P/E ratio of less than 1. This stock is in for some nasty weather.
