Greek Shippers Brave Stormy Seas in Q2

Over the past couple of months, I've written quite a few articles analyzing this industry's economic woes, as well as Greek shipping tycoons' itch for new and advanced vessels. While things have remained pretty much the same since the last time I checked, it's earnings season. So I just can't resist taking a look at shippers' latest earnings releases.

Let's see how three of the shipping companies I keep tabs on performed during the second quarter:

Diana Shipping (NYSE: DSX  )

Diana chalked up revenue of $40 million. It hit analysts' average estimates, but still, its top line took a 30% nosedive compared to the prior-year quarter. Its bottom line shrank to a loss of $5.2 million or $0.60 a share, which was a bitter pill to swallow, considering that for the second quarter of 2012, earnings came in at $0.21 a share.

For the six-month period ended June 30, time charter equivalent – the No. 1 metric of evaluating vessels' average daily performance – nearly halved to $12,939, foundering upon rock-bottom charter rates.

Diana has been really keen on expanding and diversifying its fleet with secondhand, but relatively young vessels and some newbuildings. As part of its investment strategy, it added a few loans on its balance sheet, but made sure that an out-of-the-blue financial hiccup won't cause catastrophic distortions. As of June 30, its debt-to-equity ratio stood at 0.32, much lower than the industry's average of 1.5.

With ship values bumping along the bottom, Diana's strategy makes sense. It will be best-positioned to cash in on its high-quality fleet once the industry has fully recovered. However, over the short term, I don't expect the company to return to profitability. Market rates are still depressed, and shippers barely make ends meet. On top of that, during the quarter Diana witnessed a 27% year-over-year leap in operating expenses, partly because of elevated insurance, taxes, and crew costs. 

Navios Maritime Partners (NYSE: NMM  )

For the second quarter, Navios Partners delivered revenue of $49.2 million, $2 million higher than what analysts had predicted. Net income came in at $19.5 million or $0.29 a share. Both its top and bottom line remained unchanged compared to the prior-year quarter, mainly because of an increase in available days for its fleet following the acquisition of four vessels. Moreover, Navios rewarded its shareholders with a $0.44 cash distribution per unit, indicating a yield of nearly 12%.

Navios says that its dividends are safe, at least until the end of next year. However, keeping a double-digit yield while financing a growth strategy in this environment is easier said than done. Earlier this year, it flooded the market with more than 5 million common shares, and most recently it set foot into the institutional debt market.

Navios raised $250 million by issuing a Term Loan B facility, and applied the net proceeds to pay down its debt and finance part of its latest acquisitions, among other uses.

During the earnings call, Angeliki Frangou – the woman holding the reins of the Navios group of companies – mentioned that the cash servicing requirements for this type of loan are notably low. When measured up against the respective requirements of an identical amount in the form of a traditional commercial bank loan, Navios gets to save around $17.5 million annually.

At the end of the day, it managed to cut its daily cost break-even levels down to $8,600 -- possibly the lowest break-even point among dry bulk shippers today.

Dryships (NASDAQ: DRYS  )

Dryships' second-quarter results matched analysts' estimates. Yet that's nothing to write home about, since analysts didn't really expect to see a great income statement in the first place.

The company reported a net loss of $18.2 million, or $0.05 a share. Net voyage revenues from its tanker segment increased slightly to $9.1 million, but revenues from its dry bulk division marked an almost 28% year-over-year drop. Ocean Rig – Dryships' arm in the offshore drilling business – delivered revenue of roughly $260 million, just $3.7 million less than it did last year.

George Economou, the company's CEO, does not expect to see any positive developments in charter rates for the remainder of 2013. Instead, he remains focused on reducing break-even levels. From where I stand, things look pretty awful for this company. It had to restructure some of its debt agreements and pledge an aggregate of 5,450,000 of its Ocean Rig shares as a guarantee. But it's still drowning in debt, and unable to stop its cash-bleeding.

Clearly, there are challenges ahead from Dryships. Let's say it weathers the storm and eventually emerges as a winner from an industry recovery. Even so, I can't help but wonder what investors make of certain agreements the company has signed over the past few years.

For instance, Vivid Finance, a private financial advisory firm controlled by Economou, provides consulting services to Dryships. For the years ended Dec. 31, 2012, 2011, and 2010, total charges  from Vivid amounted to $14.2 million, $6.0 million, and $1.7 million, respectively. Also, up until the end of 2010, Dryships' day-to-day vessel and chartering operations were run by Cardiff Marine, another company affiliated with Economou. In January 2011, Cardiff was replaced by TMS Bulkers ... which is also owned by Economou. 

Final thoughts

It was undeniably a rough quarter for Greek shippers. Excel Maritime, the operator of 38 dry bulk carriers, didn't make it. Last month, it filed for bankruptcy protection . Obviously, it's not "buying season" yet. But if I were to gamble on a shipper right now, I'd probably choose Navios Maritime Partners, mainly because I pin my hopes on Angeliki Frangou's management skills.

When will this industry finally escape the doldrums? Lately, there's been an upswing in the Baltic Dry Index – the barometer that gauges the cost of shipping dry bulk commodities around the globe, and the industry's key health indicator. Nevertheless, shipping companies' No. 1 problem – the oversupply of tonnage that keeps pushing down charter rates -- is not going away anytime soon, especially after this year's whopping ordering activity.


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