Ceva Logistics Posts Weak First-Half Results

Swiss third-party logistics provider Ceva Logistics (CEVA.SW) reported weak first-half 2019 financial results on July 30, weighed down by a slowing global economy, difficult conditions in the automotive sector, and unfavorable currency swings due to the translation of earnings into a stronger U.S. dollar.

Ceva, which is now all but fully owned by French container line giant CMA CGM, reported revenue of $3.5 billion, down from $3.6 billion in the 2018 period. Ceva's results were hurt by currency fluctuations; measured in constant currency, year-on-year revenues rose 2.5 percent, Ceva said. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined by $39 million to $104 million. Margins contracted to 2.4 percent from 3.3 percent.

Ceva attributed the top and bottom line drops in part to a $12 million restructuring charge and an ongoing and costly dispute involving two contract logistics accounts in Italy. Its automotive logistics business, an important part of its verticals mix, experienced slow going, especially out of China, Ceva said. In addition, the company was saddled with "underperforming" contract logistics business, it said. Ceva's two lines of business are contract logistics and freight management.

Ceva's freight management business, which is closely tied to global macroeconomic conditions, experienced a "significant contraction" in airfreight volume during the first half of the year, Ceva said. The company said it was still able to improve year-on-year yields – measured in net revenue per ton. Its ocean freight business was hurt by a loss of a major customer in the second quarter, Ceva said. It did not identify the customer but acknowledged it accounted for 10 to 15 percent of its overall ocean business. Ceva retained some of the legacy business, but lost most of it during the bidding process for the renewal, CEO Nicolas Sartini said during an analyst call Wednesday from Switzerland.

Other than the one customer, there were no customer defections during the first half of the year, Sartini said.

The company maintained its 2021 revenue target of $9 billion, and raised 2021 adjusted EBITDA to between $470 million and $490 million from $380 million. Analysts view the objectives as ambitious given the company's current market and financial position, however.

The Italian logistics dispute should be resolved, or close to it, by the end of the year, Sartini said. The company has a strong pipeline of business and is shedding low-margin accounts in contract logistics that have been a headwind for some time, he said. "We are being more diligent than we have in the past in accepting new contracts," he added. Air freight volumes, which in the first half trended lower than the overall market – which itself has been weak – stabilized in July, he said.

Following the close in mid-April of its $1.65 billion acquisition of Ceva, CMA CGM now holds 99.6 percent of CEVA's equity. CMA Chairman and CEO Rodolphe Saadé was elected Ceva chairman in late April. The two companies will operate separately but will cross-sell shipping and logistics services to their respective customers. The acquisition is part of CMA's broader strategy to integrate logistics services with its core ocean shipping business, and to insulate the carrier from the volatility of the ocean shipping market, where overcapacity and rate discounting have pressured carriers' margins for years. Danish liner giant Maersk OTCMARKETS has implemented a similar strategy.

All remaining Ceva shares outstanding will be cancelled sometime during the current quarter, Ceva said.

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