Although I don't always agree with everything DryShips (NASDAQ:DRYS) and its CEO George Economou have to say, their conference calls are full of industry insight. With that in mind, there are a number of key things to listen for and, if you're able to do so, a number of key questions you may want to consider asking. DryShips reports its earnings after hours on Thursday, May 22, followed by the call at 9:00 a.m. EST the next morning.
The last DryShips conference call took place in February. The overwhelming theme of the call was to expect global daily dry shipping spot rates to have a "sustainable recovery" in 2014 and beyond. Iron ore and coal exports were "factors that can really set the markets on fire." In addition to worldwide expansion of demand, DryShips listed a number of things that should reduce the availability of world supply, such as slow steam of ships, port congestion, the slowing rate of new orders, and the considerable "scrapping potential" of old ships.
DryShips' strategy was to take advantage of the anticipated strength to come in daily spot shipping rates by letting long-term, fixed-rate contracts expire and letting its fleet operate based on floating daily rates. Also, DryShips has debt amortization schedules for which it is hoping to score leniency in the form of rescheduling from the debt holders.
Questions for DryShips
1. Is there any update that management can share aboutthe debt negotiations? Genco Shipping & Trading has recently filed for bankruptcy restructuring due to failed negotiations, which makes one wonder if DryShips will be any more successful. While DryShips has much larger collateral, namely 78.3 million shares of Ocean Rig UDW, giving these shares up to creditors would mean potentially giving up majority control of Ocean Rig UDW, which doesn't seem to be in DryShips' interest. DryShips' annual report specifically warns that if low charter rates continue as they are or decline further, then lenders may cease being cooperative. Charter rates have gotten worse over the last couple of months, so how are the lenders feeling now?
2. Back in March, Economou said that it is "time to celebrate after a six year downturn in the shipping markets" at the end of an interview. At the time, he also predicted a "hot" freight market over the next three months; instead, it has crashed. What happened? Has the party simply been delayed or does DryShips have a new outlook?
3. Does DryShips still expect an expansion in iron ore mining around the world to lead the dry shipping market into calmer seas? What details does the company see now and in the medium-term future regarding China and iron ore? Which details have the company worried?
4. What is DryShips seeing on the supply side? It seems like the two most important factors are the delivery of new ships adding to supply and the demolition of old ships being removed from total supply. There has been talk by all sorts of experts, analysts, and executives of an overdue mass exodus of ships that have completed their useful lives and are headed to the scrapyard. What is DryShips' stance on why retiring ships is taking so long, and does it have an updated forecast about replacing older vessels?
Any comments from Economou or anybody else at DryShips regarding the megamillions of dollars in related transaction fees, commissions, and other payments to companies owned by Economou himself? Don't expect anybody to ask about these related party transactions, or for a straight answer to be given if the question is raised, but it's worth a shot.
It will be interesting to see which of these questions happen to be addressed, and what the answers are. For speculators with a strong stomach, it should be wild ride either way. As for me, I'll be sitting this one out on shore. I too easily get seasick.
Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.