Navios Maritime Faces Stormy Seas Ahead

Next Tuesday, Navios Maritime Holdings (NYSE: NM  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Navios is far from the only company to suffer greatly from weak conditions in dry-bulk shipping lately, as low rates and a glut of capacity have put extreme financial pressure on the entire industry. With stubbornly persistent economic trends continuing to work against the company, can Navios pull itself out of a potential downward spiral of losses? Let's take an early look at what's been happening with Navios Maritime over the past quarter and what we're likely to see in its quarterly report.

Stats on Navios Maritime

Analyst EPS Estimate

($0.19)

Year-Ago EPS

$0.09

Revenue Estimate

$125.96 million

Change From Year-Ago Revenue

(17%)

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Will Navios Maritime keep sinking in red ink?
Navios hasn't inspired analysts in recent months, as they've made substantial cuts in their views on the company's earnings prospects. First-quarter reductions in estimates of $0.07 per share pale in comparison to revisions to the full 2013 year, which have more than doubled previous loss expectations. The stock, though, has reflected greater investor optimism, bouncing nearly 30% since mid-February.

The apparent disconnect between earnings expectations and recent stock-price moves stems from analysts attempting to call a bottom in dry-bulk shipping. As beaten-down as DryShips (NASDAQ: DRYS  ) and Diana Shipping (NYSE: DSX  ) have gotten, the entire industry still has structural difficulties to overcome before it can recover. Not only do Navios, DryShips, and Diana compete among themselves and other shipping specialists, but they also have to face private companies establishing their own fleets to serve their own particular business-shipping needs.

But Navios in particular is seeing some difficulties in its balance sheet. Earlier this month, Moody's reduced its outlook on Navios' bond rating to negative, further threatening what's already a junk bond rating of B2. Even though Navios has ample cash on its balance sheet right now to handle anticipated losses, its already-hefty debt load will create real challenges going forward if prospects for the industry don't improve soon. By contrast, Diana actually has very little net debt and has produced positive operational cash flow over the past year, and even struggling DryShips has its Ocean Rig subsidiary to help provide much-needed capital as it slowly sells off its stake in the deepwater drilling company.

The big question that Navios will have to answer in its quarterly report is how it plans to move forward. Despite the glut of capacity, modernizing fleets can bring greater fuel efficiency, which is a key element to cutting costs in a low-shipping-rate environment. Yet with so much debt already on its books, Navios might not have the capacity to take on even more capital expenditures, suggesting that the company might need to make do with what it already has until industry conditions improve.

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  • Report this Comment On May 17, 2013, at 11:52 AM, Teacherman1 wrote:

    Dan

    An interesting article, but I think there is one very important factor that you are overlooking when it comes to NM, and that is Angeliki Frangou.

    Are you aware of their pending JV?

    Her true genius is her ability to creatively finance whatever is needed.

    Regardless of the bond ratings, they have not lacked the ability to get investors when they are needed.

    The structure of all the inter-related parts can be hard to understand sometimes (and I am not claiming that I do), but they always seem to work out.

    JMO and worth exactly what I am charging for it.

  • Report this Comment On May 20, 2013, at 11:35 AM, drfool21 wrote:

    @ Dan-- I totally agree with you. Despite the rough waters NM has faced, she has been the difference in Navios's current survival status to their eventual thrive status!

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