Dive Beneath the Surface of Excel's Profits

It's hard to argue with a three-bagger, but here goes nothing.

Back into double digits, Excel Maritime Carriers (NYSE: EXM  ) has more than tripled from its March 2009 low of $3 per share. For Fools that remained long shipping stocks through those trying periods of the sector's perfect storm, I am thrilled by the recovery. Just as I'm extremely wary of the broader equity rally, though, I remain entirely unconvinced that the storm has waned for some of the more indebted dry bulk shippers.

After a steady pounding of gut-wrenching headlines (guilty), Fools are no doubt delighted by Excel's headline earnings increase of 236%. Revenue soared to $222 million from $70 million. It sounds fantastic, and under any normal circumstances I would be branding this company the next DryShips (Nasdaq: DRYS  ) . Oh wait... what happened to DryShips?

Let's begin by counting backwards from Excel's $118 million profit. If we subtract the $67.8 million relating to amortization of charters acquired with last year's Quintana acquisition, and a $51.5 million non-cash gain from additional amortization adjustments, the resulting picture for Excel's effective profitability leaves me unimpressed. In any event, the boost from these adjustments fails to erase the painful memory of that $335 goodwill writedown that so impaired the prior quarter's result.

Diving into operations, voyage revenues did 33% increase from the prior year as the fleet grew by leaps and bounds from an average 18 vessels to 47.8 operating . Again, under normal circumstances I would welcome the growth spurt, but with 13 vessels operating at woeful spot market rates, I smell revenue volatility in the air. Adding further uncertainty, Excel is awaiting delivery in 2010 of seven new Capesize vessels, but has inked charter contracts on only two. In contrast, Navios Holdings (NYSE: NM  ) awaits seven Capesize carriers of its own for delivery in 2009, but has work lined up for each one with default insurance to boot. All told, Excel has 67% of available fleet operating days covered by time charters through 2009, dropping to 55% for 2010. Navios, to continue the contrast, has booked 96.6% of its fleet for 2009 and 75.5% for 2010.

Both Excel and DryShips have managed to secure crucial debt covenant waivers to forestall repayment concerns, but their overall debt burdens continue to raise red flags. As Diana Shipping (NYSE: DSX  ) warns of sustained challenges to survival for indebted operators, the more defensively positioned operators like Diana, Navios, and Genco Shipping & Trading (NYSE: GNK  ) form a select group with enhanced survivability.

Further Foolishness:

The "dry bulk shipping" tag within Motley Fool CAPS lists 16 companies, 15 of which have been rated by our members. Join our online community today and share your views on the offerings in this sector or any other. CAPS is free and fun!

Fool contributor Christopher Barker has been aboard these massive dry bulk carriers, and felt like a kid in a candy store. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Diana Shipping. The Motley Fool has a bone-dry disclosure policy.


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  • Report this Comment On May 23, 2009, at 12:54 PM, imacg5 wrote:

    That $51.5 million for accelerated amortization of time charters in relation to the M/V Sandra, is a real hoot.

    The Sandra had a charter for $39,000 per day until 2016, which was cancelled, and reset for a weighted average of $26,500 per day. That is a pretty big loss to revenues, unless you are at EXM, where with some accounting tricks you can take it as a gain.

    The company also states that the cash infusion of $45 million was a signal of the faith that insiders have in the future of the company.

    Then why did those insiders, (family) only pay $1.75 per share?

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