Survival Trumps Profit for Shippers

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Success has been redefined. Companies exposed to industrial commerce have been catapulted from the luxury of reporting industrial-scale profits to the necessity of proclaiming their long-term viability.

Under these refined criteria for success, one might say that Excel Maritime Carriers (NYSE: EXM  ) excelled in the fourth quarter of 2008. Issuing unaudited results some four months after the quarter's close, Excel revealed a $329.2 million quarterly loss that would certainly have been deemed a failure under any normal economic environment.

Making allowances for huge writedowns, which included $335 million in goodwill from the purchase of Quintana Maritime last year, $40 million in impaired currency swaps, and $15.6 million surrendered to a cancelled vessel purchase, it appears that investors in this water-logged sector are peering past losses as long as revenue streams remain intact. Excel's shares surged nearly 20% when the market opened.

Like its competitor DryShips (Nasdaq: DRYS  ) , Excel Maritime is treading water within an ocean of debt ... about $1.3 billion in this case. Excel was engaged in some aggressive expansion just as the sector spiked to new peaks and then sank like the Titanic. The company grew its fleet capacity by 187% year over year by the end of 2008, but that resulting cargo of debt had this Fool concerned even before the summer correction became a merciless free fall.

Excel began to ease investors' concerns last week, by announcing waivers on debt covenants that remove some risk of default. Logically, the dividend was suspended in February. With this earnings release, however, Excel also addressed concerns over recent reports of clients reneging on time charter contracts, which had the potential to set a game-changing precedent within the sector.

Excel reported recovering all fees owed by one delinquent client, while compromising with another by cutting the daily rate in half while adding some conciliatory provisions. With several high-quality clients like BHP Billiton (NYSE: BHP  ) and Bunge (NYSE: BG  ) utilizing Excel's fleet, I see little risk of a pandemic of such contract delinquencies. On the other hand, the reality of contract renegotiations bridging some of the gap between lofty charter rates and horrific spot-market rates is beginning to rear its outlook-adjusting head.

With the precise timing of meaningful demand recovery among dry bulk commodities remaining anyone's guess, I still consider Diana Shipping (NYSE: DSX  ) and Navios Maritime Holdings (NYSE: NM  ) best-equipped to ride out the storm, but the risks to Excel's viability, at least, appear to be waning.

Further Foolishness:

The "Dry Bulk Shipping" tag within Motley Fool CAPS lists 16 companies. Join our online community today and share your views on the offerings in this sector. CAPS is free and fun!

Fool contributor Christopher Barker captains yachts and can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of BHP Billiton and Diana Shipping. The Motley Fool's disclosure policy is designed to roll 360 degrees if affected by a rogue wave.

Read/Post Comments (6) | Recommend This Article (23)

Comments from our Foolish Readers

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  • Report this Comment On April 09, 2009, at 4:54 PM, imacg5 wrote:

    Thank you for looking beyond the headlines in most Financial newspapers

    Either people have such low expectations that anything short of bankruptcy is reason to celebrate.

    Or, they don't know how to read an Earnings report.

    That headline of EXM beating expectations is smoke and mirrors. Earnings from voyage revenues are what counts, not a non-cash no revenue accounting for "Amortization of undervalued charters"

    Revenues from vessel charters $ 110 million

    Expenses $-110 million

  • Report this Comment On April 09, 2009, at 5:48 PM, XMFSinchiruna wrote:

    I think it's a little of both. ;)

    $78.8 million of that revenue was non-cash revenue. Funny how that fact was buried on page 4.

    p. 4

    "Revenues for the fourth quarter of 2008 amounted to $189.2 million as compared to

    $60.9 million for the same period in 2007, an increase of approximately 210.7%.

    Included in revenues for the fourth quarter of 2008 are $78.8 million of non-cash

    revenues relating to the amortization of unfavorable time charters that were fair

    valued upon acquiring Quintana."

  • Report this Comment On April 09, 2009, at 6:11 PM, imacg5 wrote:

    The reason for the increase year over year was because they went from 17 ships to 46 ships with the Qmar deal. Unfortunately, those ships were carrying huge debt.

    When Shippers include the proceeds from sale of ships, the analysts strip those out, and they should strip out this, Voodoo accounting, leaving $110 million.

    Also the insiders who bought 25 million shares for $1.75 last week, pretty much set the price. If that $79 million was real money, the kind you can deposit in a bank, then they wouldn't have had to sell those shares to appease the covenants.

  • Report this Comment On April 09, 2009, at 7:18 PM, XMFSinchiruna wrote:

    I agree.

  • Report this Comment On April 10, 2009, at 3:21 AM, mjonesy1985 wrote:

    It's all psycholical so why complain about it? I bought EXM 3 days before they released the earnings. And I sold after the earnings had been released. Made an extra $1.17 per share. So why all the upset?

  • Report this Comment On April 10, 2009, at 3:22 AM, mjonesy1985 wrote:


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