Perhaps you'd rather forget, but I know you remember Waterworld.
I refer to the notoriously expensive production that featured Kevin Costner (complete with gills) sailing a tricked-out trimaran through post-apocalyptic seas. The movie was terrible, but as a sailor, I found the craft fairly intriguing -- it had an answer for every challenge.
In the wake of the perfect storm, I view the dry bulk shipping industry in a similar light. If these haulers aim to survive, they had better have their operations and their balance sheets fully tweaked in a manner suited to the prevailing conditions.
Reporting a 10% decline in earnings per share despite a 14% increase in revenue, Excel Maritime Carriers (NYSE: EXM ) is still not a ship I would want to rely upon through this challenging period. Just as the company foretold one year ago, 2010 revenue continues to be padded by accounting magic relating to the 2008 acquisition of Quintana Marine. Without the amortization of acquired charter contracts, the shipper's headline earnings of $78.9 million fizzles down to a measly $3.1 million. The company's debt load has improved a bit, but it remains in troubling territory above $1 billion.
Meanwhile, whereas Excel's fleet enjoys attractive tonnage diversification that is heavily weighted in the midsized Panamax and Kamsarmax varieties (approximately 70,000 to 80,000 dwt), the addition of five additional Capesize carriers in 2010 will tip the balance more heavily into precisely that segment of the global fleet now feeling the greatest pressure from oversupply. Capesize vessels will then account for nearly 40% of Excel's total tonnage.
Competitor Eagle Bulk Shipping (Nasdaq: EGLE ) remains a specialist focused on the Supramax class of carriers in the mid-50,000-dwt range. As I have reported previously, this company is in the midst of an extremely aggressive, 27-vessel fleet expansion that has led me to approach the shares with considerable caution. Unlike DryShips' (Nasdaq: DRYS ) ultra-risky drilling rig venture, at last check almost all of Eagle's pending constructions had already been contracted for hire upon delivery. In this environment, I consider no growth spurt acceptable unless revenues are similarly locked in ahead of time. Both Diana Shipping (NYSE: DSX ) and Navios Maritime Holdings (NYSE: NM ) have likewise employed this demand-driven approach, and I believe this is one key reason that their stocks have outperformed the competition in recent years.
For its part, Eagle reported earnings of $0.18 per share ... a painful 31% slide from the prior-year period despite a 24% surge in revenue. With only a $2.3 million disparity in nominal earnings, the reduced earnings per share were more reflective of share dilution than reduced profitability.
With so much of the acute vessel oversupply problem coming from the larger end of the dry bulk fleet, perhaps -- just perhaps -- Eagle has found a workable niche in the Supramax space. In truth, though, the jury is still out.
Waterworld had plenty of fuel-starved craft, but only one sailboat. Diana is still my tricked-out trimaran, but against significant odds, Eagle may prove a pretty dinghy after all.
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