Secrets of the Sea

Due to the breathtaking rise of dry-bulk rates over the past few years, there's a plethora of these shipping companies in the stock market today. None, however, has been listed as long as Excel Maritime (NYSE: EXM), the original gangsta of the high seas. The maritime old-timer's quarterly results didn't command much respect among investors, and I'd like to figure out why.

Given that the Baltic Dry Index more than doubled the prior year's level, you might be surprised to see that Excel boosted its revenues by only 32% in the third quarter. The primary explanation is that Excel charters out a significant amount of its fleet for medium-term work, and trades spot market exposure for revenue visibility. For the third quarter, Excel had spot exposure of 43%, a modest increase over last year. Those spot rates brought in fully one-third higher revenues than so-called period rates.

Fleet utilization weighed on revenues as well. Curiously, Excel failed to mention the impact of its offhire days, the time during which a ship is unavailable due to inspections and/or maintenance. This is akin to a refiner like Valero (NYSE: VLO) neglecting to address the revenue impact of a turnaround at one of its facilities. Excel's offhire days were greater than anticipated, but you would have had to tune in to the conference call to discover this. I believe it's this factor that caused Excel to miss analyst estimates.

In each quarterly release, DryShips (Nasdaq: DRYS) projects the impact of drydocking in future quarters, in terms of both time and money. Eagle Bulk Shipping (Nasdaq: EGLE) provides similarly thorough guidance. I realize that shipyard delays are hard to predict, but I don't understand why Excel doesn't print an estimate of future offhire days. This practice could help avoid future mismatches between expectations and results.

Compared to the actual business operations and outlook, this may seem like nitpicky stuff. But I am more than a bit bothered that Excel's printed disclosures to shareholders seem lacking, even after all these years as a public company.

As for the dry-bulk outlook, I haven't left myself much room to expound on this, but it's fundamentally about Chinese demand. I personally don't find concerns about China's ability to scare the market into dropping rates very credible. Until that economy cools off, I don't see the dry-bulk firms' hot streak coming to an end.

Excel Maritime has a five-star ranking in Motley Fool CAPS. You can weigh in on this stock right here.

Related Foolishness:

• Speaking of cooling off, check out this tanker company's results.
• Not all tanker companies were dragged under, however.
• Thanks to high spot market exposure, DryShips' profits were scary -- scary good.