Shares of Israeli liner company Zim surged about 9% in pre-market trading in New York on Wednesday after it smashed analyst earnings expectations and raised its guidance on full-year earnings.
It reported net income of $1.13bn or $9.34 per share, which battered the consensus bets of Wall Street analysts of $6.95 per share.
The Haifa-based operator also hiked full-year Ebitda guidance to between $3.3bn and $3.6bn, from a previous estimate of $2.6bn to $3bn.
Zim’s strong quarter allowed it to pile $100m in special dividends on top of the $340m regular dividend, which represents 30% of net income. This equates to $3.65 per share, with $0.84 of that coming in the special payout.
Adjusted Ebitda of $1.53bn sailed past analyst expectations of $1.3bn.
The quarter, which featured total revenue of $2.77bn, reversed results from the third quarter of 2023, when Zim reported a net loss of $2.27bn or $18.90 per diluted share on revenue of $1.27bn.
Chief executive Eli Glickman said in the earnings report: “Our growing earnings power is reflective of a strong rate environment, but also a testament to our diligent execution, upscaling our capacity and enhancing our cost structure.
“We’ve continued to see incremental benefits from our strategic investment in our operated capacity as new larger, more modern, cost-effective vessels join our fleet.
“Also contributing to our strong Q3 was a decision we made earlier in the year to increase our exposure to spot volumes in the Transpacific trade.
“A key differentiator for Zim is our commercial agility and we intend to continue to leverage this strength to capitalise on market opportunities moving forward.”
Jefferies analyst Omar Nokta, who has a “hold” rating on the stock, referred to the special dividend payment as a “surprise”.
It represents a 13.5% yield based on Tuesday’s closing price of $26.61, and was much higher than the $0.93 distribution for the second quarter.
“The Board has at its discretion the ability to pay out a full 50% of [earnings per share] at year-end in a ‘true-up’,” Nokta wrote. “Excluding the $100m special payout, this suggests $2.60 per share of additional dividends based on the first nine months of 2024 could be paid out if Zim goes the full 50% payout route.”
The cash position has fattened to $3.16bn from $2.36bn at the end of the second quarter, which amounts to $26.20 per share — roughly Zim’s recent stock price.
Zim benefited from carried volumes of 970,000 teu, a ramp-up from 952,000 teu in the second quarter. It has averaged about 850,000 teu since 2021, Nokta wrote.
The company captured a realised freight rate of $2,480 per teu, substantially higher than the previous quarter’s $1,674.
However, a more sobering take came from the desk of Fearnley Securities, which said the upgraded earnings guidance suggests a sharp drop in earnings for the current quarter.
It will take a rates rally towards the start of 2025 for the higher end of Zim’s guidance to be met, while the low end implies that it will earn only about $2 per share in the current quarter.
“In sum, a solid report, but we argue buyside expectations have come up lately and that today’s beat is not as material as it screens initially,” Fearnleys wrote.
