What Indicator Are Navios Maritime Holdings and DryShips, Inc. at Odds Over?

Angeliki Frangou is the CEO of two dry shipping companies: Navios Maritime Partners (NYSE: NMM  ) and Navios Maritime Holdings (NYSE: NM  ) . The earnings reports and conference calls of the two are about three weeks apart -- Navios Martime Partners reported on Jan. 29 and Navios Martime Holdings reported on Feb. 19 -- so it's a good idea to check both reports to gain insight into the industry. While Frangou remained consistently optimistic on both conference calls, it was the latter call that contained something that contradicted DryShips (NASDAQ: DRYS  ) CEO George Economou's recent industry assessment. What this indicator is may surprise you.

What they agree on
Both CEOs believe that 2014 and 2015 will be excellent years for their companies. Economou is "very excited" as he sees a "clear sign of a balance supply demand picture." To him, that means expected increased global demand will lead to higher rates and higher cash flow for DryShips.

Economou was proud to say during the conference call on Feb. 19 that DryShips is "a pure shipping company with predominantly spot market exposure in 2014 and beyond." He expects rates to rise and DryShips to be in excellent position to benefit.

Both he and CFO Ziad Nakhleh see a number of factors that "can really set the markets on fire." These are strong words. They believe DryShips and the industry will benefit from an improved global economy, improved steel production demand along with improved steel margins, seasonal factors, and reduced ship supply.

This is in line with the results and conference call from Navios Maritime Partners. Frangou is so confident about 2014 and beyond that she promised to keep the generous quarterly dividend the company is paying through the end of 2015, and is positioned to raise it in the medium term.

Navios Maritime Partners believes, in the words of Frangou, "The drybulk environment has brightened significantly". She, just like management at DryShips, expects cheaper iron ore prices, more volumes shipped of all sorts of commodities, and less supply of ships.

Where they begin to bump heads
In the DryShips' earnings release, Economou stated, "Asset prices are rising which is a strong indication of current market sentiment. We are optimistic and expect a sustainable recovery in 2014 and beyond." He believes that the current rising costs of used and new ships is a forward-looking signal that points to improved fundamentals for the dry shipping industry.

The next morning after the DryShips release, Navios Maritime Holdings hosted its conference call. The question of asset prices was brought up at the Q&A session. Frangou responded, "Listen, I mean asset values has also to do with a fear and greed, and it's more longer term kind of a position, it's not only the spots market, it really more by the – I mean by spirit of people." She went on to state that, when volatility happens, "this is a totally fear and greed situation."

DryShips sees the fact that asset prices are currently rising as a positive fundamental sign for the future. Navios Maritime Holdings and Navios Maritime Partners, disagree. They see the current rise in asset prices as as more of something that is temporary and fluctuates based on emotion. While DryShips sees the current rising asset prices as evidence of a positive fundamental shift for dry shipping, Navios Martime Holdings (and Partners) sees the current rising asset prices as an emotional reaction of the moment with little to no true fundamental basis.

In short, DryShips sees asset prices rising as a positive signal, and the two Navios companies sees asset prices rising as noise.

Foolish final thoughts
Regardless of whether DryShips is right or Navios Maritime Partners and Navios Maritime Holdings are right, being armed with more information can't hurt. It's not a bad idea to take note of asset prices to try to gauge the future. Even if Frangou is more correct that it's more of a function of fear and greed, fear and greed aren't necessarily wrong and may prove to serve as an early warning signal to, at least, do some further digging to see if there is any fundamental reason that's causing the emotional change in sentiment.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2014, at 12:37 PM, imacg5 wrote:

    The sheer magnitude of lies that George Economou has given us over the years would be too much to post here.

    Look up the lawsuit Kahn vs. Dryships

    Angeliki is a straight shooter, and a very good CEO.

    But the CEO that has been most honest with shareholders through bad and good would be Simeon Palios from DSX.

    However, reading just the PR's put out by these companies will get you in trouble.

    The shipping trade papers and ship brokers will fill you in on the gory details.

    Because this rebound in shipping rates will be muted by an oversupply of ships that is only tempered by the effects of slow steaming.

    And when rates reach a certain level, then the cost of daily charter rates, will overcome the savings from slow steaming.

    Then there is the fact that 2013 saw a return to the shipyards, which will make the deliveries exceed demand again in 2016.

  • Report this Comment On February 26, 2014, at 1:59 PM, ricjensen wrote:

    imac,

    While in general I agree with the fact that GE is no knight in shinning armor, the lawsuit you refer to was decided for the defendants (DRYS).

    "Because plaintiffs do not sufficiently allege an actionable

    misrepresentation or omission or scienter, the second amended complaint

    must be dismissed. Accordingly, IT IS HEREBY ORDERED that defendants’ motions to dismiss are granted, and plaintiffs’ amended complaint is

    dismissed.

    Also check out Youtubes "February 2014 Dry Cargo Comment". The next 2 years look fine.

  • Report this Comment On February 27, 2014, at 6:45 PM, imacg5 wrote:

    Yes, the lawsuit went in favor of DRYS because there is no law against incompetence.

    But most people don't believe that George is incompetent. So those of us that have followed dry bulk for years are led to believe that George made those horrible moves to the detriment of DRYS shareholders, and to the benefit of Cardiff, on purpose.

    Regardless of how you feel about that. The reason I brought up the lawsuit is so that you can see the promises made over the years, there is no debate about the promises, they are in the earnings reports, and conference calls if you want to look them up.

    And the lawsuit reveals what promises were broken.

    Shareholders who may be looking for a hefty dividend from ORIG to DRYS, should be aware of the promise in 2008 for a one share of ORIG dividend going to holders of one share of DRYS.

    Instead, in 2011, DRYS shareholders received .007462 shares of ORIG for every share of DRYS that they owned. Not a minor infraction.

    There are many more examples in the lawsuit, the fact that he made the promises was not questioned, it was merely determined that George was not culpable. He does cover himself well in the disclaimers of every report.

    Also, if you are familiar with his conference calls, he maintained a bullish outlook while the sector crashed, mostly so he could sell shares. While the honest CEO's like Palios warned shareholders of the disaster ahead.

    I think my warning is warranted

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