What Do Diana Shipping's Results Mean for Dry Shippers?

Diana Shipping (NYSE: DSX  ) was the last among the major public dry shipping companies to report third-quarter results. While the other dry shipping companies such as Safe Bulkers (NYSE: SB  ) and Navios Maritime Partners (NYSE: NMM  ) have reported a rosy outlook for 2014 and beyond, Diana Shipping had a more mixed outlook. When the odd man out has a different perspective, it's important to pay attention.

Diana Shipping reported its third-quarter results on Nov. 19. Revenue dropped 25% to $41.9 million. Net loss was $3.2 million compared to a net income of $12.3 million.

The poor performance owed to the expiration of favorable fixed-rate contracts that began in previous years, when rates were much higher. However, in the conference call, President Anastasios Margaronis described the company's third quarter as "one of the most exciting quarters for dry bulk shipping since 2009 collapse of the freight market." 

Cautionary tone
Margaronis then turned to a more cautious tone. He warned that past patterns in the business won't necessarily repeat going forward, because Chinese traders of iron ore by and large dictate the overall direction of the environment. He called it "a relatively new phenomenon [that] everyone involved in dry bulk shipping should start to accept." This implies other dry shippers are not operating with enough caution.

While Margaronis notes that iron ore shipments to China are expected to increase by 9%, he cautions that most of the growth in exports will come out of closer Australia, rather than farther-away Brazil. "This is not particularly good news for ton-mile demand growth," he said.

Overall, Diana Shipping remains cautiously optimistic about the dry shipping market despite a laundry list of other concerns, such as new ship orders and low scrap rates of old ships. This more balanced view of the industry does offer a degree of credibility compared to other shippers' firmly and universally positive outlooks. Diana Shipping believes the next 12 to 18 months will see greater earnings fundamentals across all ship sizes compared to 2013.

Diana Shipping still believes that shipping is currently in the "lower parts of the cycle." Because of the unknowns involved during troughs like this, it's being very conservative with cash and debt. It is specifically choosing not to pay a dividend until it has confirmed that the industry has reached "the upper part of the shipping cycle."

Others paying a dividend
Safe Bulkers has a more optimistic, aggressive take on the state of the shipping industry. Dr. Loukas Barmparis described the current environment as "an early stage of the forthcoming shipping cycle."

In light of that positive outlook, Safe Bulkers put its money where its mouth is, raising its dividend by 20% alongside its earnings report. Since dividend raises often speak louder than words, Safe Bulkers probably believes that Diana Shipping is overly cautious.

Navios Maritime Partners took its bullishness a few steps further. Not only did it announce a $0.4425-per-share dividend, but the company also affirmed that it's committed to pay at least that much quarterly, if not more, through 2014.

Navios Maritime Partners CEO Angeliki Frangou stated, "We believe that in time, investors will find Navios Partners' yield extremely attractive." In essence, she's going out on a limb by almost directly saying to investors that the stock price is undervalued, will attract buyers, and will rise. 

Foolish final thoughts
While it seems all dry shippers lately share optimism about the state of the dry shipping industry in 2014 and beyond, Navios Maritime Partners is on the most bullish end of that spectrum, while Diana Shipping occupies the opposite pole. It should comfort investors that even the most cautionary of the group still believes there will be a positive rate environment in the future.

Given all this info, follow not only the rate trends, but also Diana Shipping's outlook. Given how conservative the company is, if and when management gets more optimistic with words or actions, you'll know the tide has likely turned officially.

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