Will Navios Maritime Holdings Outsail Diana Shipping and DryShips?

Navios Maritime Holdings (NYSE: NM  ) will release its quarterly report on Monday, and shareholders are hoping to see solid results from the company that sits atop the Navios empire. Yet, with DryShips (NASDAQ: DRYS  ) having given its shareholders fairly good news while Diana Shipping (NYSE: DSX  ) disappointed its investors with its results, what's really in store for Navios?

Navios Maritime Holdings sits at the top of a complicated set of subsidiaries and related entities, with the company owning a substantial stake in Navios Maritime Partners (NYSE: NMM  ) and Navios Maritime Acquisition (NYSE: NNA  ) , which, in turn, own vessels of their own. Overall, though, Navios Maritime Holdings depends on the health of the shipping industry to drive its results, and so it has suffered along with DryShips and Diana Shipping during the down-phase of the market, and has risen recently as prospects start to improve. Let's take an early look at what's been happening with Navios Maritime Holdings over the past quarter, and what we're likely to see in its report.

Stats on Navios Maritime Holdings

Analyst EPS Estimate

($0.12)

Year-Ago EPS

$0.04

Revenue Estimate

$124.53 million

Change From Year-Ago Revenue

(24%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

How will Navios Maritime Holdings fare this quarter?
In recent months, analysts have had mixed views on the prospects for Navios Maritime Holdings, widening its third-quarter loss estimates by $0.01 per share, but boosting its full-year 2014 projections by $0.13 per share. The stock has risen from its lows, jumping 20% since mid-August.

We've already gotten a good sense of how Navios Maritime Holdings' earnings might look because Navios Maritime Partners reported at the end of October. Revenue fell 16%, contributing to a more than 40% drop in net income from the year-ago quarter. But those results were in line with what investors had expected to see, and the company's commitment to sustaining its dividend, which produces a yield of nearly 12%, gave shareholders confidence that things are looking up for the industry. That sentiment matches well with what DryShips CEO George Economou said in that company's quarterly report, pointing to "a sustainable recovery in 2014 and beyond.

But not everyone in the industry is convinced that improvement is a sure thing. Diana Shipping's president said in that company's report that although rising import demand from China for raw materials like iron ore could help the industry recover, much of the demand is likely to come from Australia, which involves much shorter trips than drawing those resources from Brazil and other destinations across the Pacific.

The key to understanding Navios Maritime Holdings is that it stands to benefit from both of its affiliates' successes. With substantial stakes in those entities, Navios Maritime Holdings can collect dividend payouts and management agreement fees from its affiliates, helping to support the 3% yield it pays its own shareholders. As it collects more money from Navios Maritime Partners and Navios Maritime Acquisition, those dividends could rise.

In the Navios Maritime Holdings earnings report, watch for the company to give additional color on how the state of the industry affects the parent company's prospects as well as those of its affiliates. Understanding the corporate structure at Navios is essential in order to make smart investment choices.

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Read/Post Comments (6) | Recommend This Article (1)

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  • Report this Comment On November 23, 2013, at 12:29 PM, Khizhim wrote:

    Dan:

    I'm looking at your 4th paragraph:

    "We've already gotten a good sense of how Navios Maritime Holdings' earnings might look because Navios Maritime Partners reported at the end of October. Revenue fell 16%, contributing to a more than 40% drop in net income from the year-ago quarter. But those results were in line with what investors had expected to see, and the company's commitment to sustaining its dividend, which produces a yield of nearly 12%, gave shareholders confidence that things are looking up for the industry. That sentiment matches well with what DryShips CEO George Economou said in that company's quarterly report, pointing to "a sustainable recovery in 2014 and beyond."

    1. I haven't checked to see the dates of the third quarters which both of these Navios business units report, but I'm guessing the two units may use different fiscal years. Navios Partners may report a month before Navios Holdings because the Partners quarter may end a quarter before the Holdings quarter.

    2. If the two fiscal years are a quarter apart, is the passage of a single month since the Partners report enough time for the focus to have shifted from the adverse conditions which affected the Q3 Partners performance to the current business outlook?

    3. I assume this is what you're saying. Am I correct? You point out that NM decided to maintain its generous dividend and that George Economou anticipated "a sustainable recovery."

    4. This is a highly-cyclical industry. Its outlook depends on future demand for dry-bulk imports by consuming nations such as the PRC and India. I'm not up to date but I think the outlook for the PRC recently seemed to improve, possibly also with respect to dry-bulk imports, possibly for continued infrastructure expansion.

    I also noticed the extremely-interesting recent NM press release about their agreement with Vale for the storage and transshipment of "mineral cargoes" in the Hidrovia region of South America, where Navios has long been active (as Navios South American Logistics Inc.).

    Angeliki Frangou bought her first ship in South America: it had been stripped of its equipment, maybe prior to scrapping. She bought it with a $2M bank loan in 1990 at age 25, outfitted it again, made it seaworthy, "and the rest is history." Her father was well-regarded for his successful career in shipping, so she must have had a head start, but she seems to be an exceptional individual, with superior ability. See the 2-27-13 CNN video: "Angeliki Frangou, Chairman and CEO of the Navios Group of Companies Featured on CNN International's Leading Women With Becky Anderson," at:

    http://phoenix.corporate-ir.net/phoenix.zhtml?c=187110&p...

    When I last saw any news about Vale's effect on the dry-bulk sector I read (in 9-11!) that they were planning their own fleet of super ships, built in Korea and in the PRC. Those dry-bulk carriers were expected to be the world's largest. They were referred to as "mega" ships, also as "Valemax" class and as "VLOC" (Very Large Ore Carriers"). Those ships were expected to kill the independent dry-bulk carriers, but the economics of this stupefying plan were widely questioned. For example, the "Valemax" ships were so large they couldn't even dock at existing port facilities and would require new terminals. Vale's purpose seemed to be to try to drive dry bulk rates down in order to compensate for Australia's comparative advantage of its proximity to the PRC.

    Now I read that Vale is planning to *PAY* Navios to provide shipping and storage services! I have no idea what happened to the Vale dry-bulk-fleet plan, but I assume it was abandoned... Score: NM 1, Vale 0?

  • Report this Comment On November 25, 2013, at 8:10 AM, Ostrowsr wrote:

    All shipping stocks should improve. The world is coming out of a downturn and improving. I just don't understand why DRYS is only rated at 3 stars. It's ORIG holdings are an unstoppable insurance for this company. None of the others have a money machine supporting their stock.

  • Report this Comment On November 26, 2013, at 7:39 AM, imacg5 wrote:

    The Vale ships haven't been abandoned.

    Several are sailing to Oman and Amsterdam.

    And Vale has built a transshipment hub in the Philippines, where the Valemax delivers ore, and it is then transferred to Capes for delivery to Chinese ports.

    There are ports in China that can handle the 400,000 dwt ships, but the Chinese shippers have gotten the gov't to ban their use, because the Chinese shippers are struggling with the low charter rates, and claim they are unfair competition.

    They are negotiating a deal.

    The remedy seems to be that Vale will lease the ships to the Chinese shippers, and the shippers will operate them on long term charters with Vale to ship Vales ore.

    Vale already has similar arrangements with Korean shippers, and steel mills.

    The Vale ships will be built, there will be 30 of them, and they do add to the glut of supply.

  • Report this Comment On November 26, 2013, at 6:32 PM, Khizhim wrote:

    imacg5:

    Thanks for the update about the Valemax fleet.

    1. Can you explain how this relates to the news about Vale's purchase of services from Navios in the Hidrovia River region of South America?

    2. Does Vale's reported intention to follow through on this plan for an entire fleet of super-ships "sound the death knell" for many dry-bulk carriers?

    3. Angeliki Frangou seems to be an exceptional businesswoman. Do you think she can survive the adverse effects of Vale's initiatives?

  • Report this Comment On December 01, 2013, at 1:54 PM, imacg5 wrote:

    The VALE deal with NSALI will provide for logistics that Vale needs to get the ore to the ports, whether the ore ends up on the Valemax ships, or on any ship for export.

    Vale' former CEO, Agnelli, spent many Billions on it's own infrastructure in the past. Vale has built rail lines to the ports, and hydroelectric dams to provide power to the mines. Even large fast ferries, to bring workers to the mines. And the ambitious ship orders that we are talking about.

    So, under new management, Vale has been trying to cut costs. This deal saves Vale on Capex.

    The Valemax doesn't "sound the death knell", but those ships and all the other ships that have been built over the last six years, along with those on order, have created an oversupply, that is going to keep rates at barely profitable levels for awhile.

    Navios is well managed, and will find a way to make those rates work. But low rates will spell the death knell for the companies that have high debt, and the high interest and finance costs that go with it. The companies that have breached loan covenants pay higher interest rates, and many have pushed debt payments off for a few years, hoping for some relief.

  • Report this Comment On December 01, 2013, at 5:51 PM, Khizhim wrote:

    Thanks, imacg5, for contributing to this thread.

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