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Seaspan Corporation's Rising Fleet Drives Earnings

By Matthew DiLallo – Jul 26, 2016 at 10:00AM

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The containership company completed a bevy of transactions to bolster its balance sheet during the quarter.

Image source: Getty Images. 

Seaspan Corporation (ATCO) reported its second-quarter results after the closing bell on Monday. While that report showed steady growth in cash flow, driven by new additions to its fleet, the bigger story was the moves the company made to set itself up for future growth. Those actions included additional acquisitions as well as several transactions that raised a boatload of cash.

Seaspan Corporation results: The raw numbers

Metric 

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Revenue

$224.3 million

$199.2 million

12.6%

Cash Available for Distribution

$111.2 million

$105.7 million

5.2%

Normalized EPS

$0.30

$0.22

36.4%

Data source: Seaspan Corporation.

What happened with Seaspan Corporation this quarter?

New additions drove Seaspan's earnings:

  • Seaspan added three vessels to its operating fleet during the quarter, bringing it up to 89. One of the vessels was a newbuild that the company accepted during the quarter and immediately put it to work under a 10-year fixed-rate time charter. The other two additions are leased vessels the company took over from its Greater China Intermodal (GCI) joint venture with the Carlyle Group (CG).
  • Seaspan's vessel utilization eked higher during the quarter to 98.1%, up from 98% in the year-ago quarter because fewer ships were due for dry-docking.
  • Ship operating expenses slipped 0.1% to $49.2 million due to the company's cost saving initiatives, including lower crew costs. General and administrative expenses, on the other hand, jumped 42% to $9.1 million due to higher professional fees.
  • Those higher professional fees were largely the result of a series of transactions to raise capital. Overall, the company raised more than $1 billion in capital via common and preferred equity issuances, lease financing agreements, and a renewal of its revolving credit facility.
  • Finally, after the quarter's end the company acquired two newbuild vessels from its joint venture with the Carlyle Group for $195.6 million. These vessels are fully contracted to 17-year bareboat charters when they go into service next year.

What management had to say 

CEO Gerry Wang, commenting on the company's results, said:

We continued to generate strong financial and operational results in the second quarter, which was defined by a series of transactions that strengthened our balance sheet and positioned us for further growth. Seaspan secured in excess of $1.0 billion in new capital during the second quarter, comprised of loan, lease and equity financings. Our continued ability to access capital from diverse sources is a strong endorsement of our stress tested business model and disciplined growth strategy.

One of Seaspan's primary goals in 2016 is to raise capital to fund future shipyard payments for newbuilds as well as to refinance upcoming maturities. After raising more than $1.2 billion since the start of the year, the company has largely accomplished that goal. This is muting the concern that it would not be able to access the money it needed at favorable rates due to the slowdown in the shipping sector.

Looking forward 

While that slowdown is hurting the profitability of its customers, Seaspan remains unaffected due to the long-term nature of its contracts. Instead, it is poised to continue growing cash flow as it takes delivery of the newbuilds it has in the pipeline. While the company has just one more scheduled for delivery this year, it has eight on deck for next year. That said, two of those vessels remain uncontracted, which is a concern because the company would be on the hook for additional expenses without the associated benefit from any incremental revenue.

Matt DiLallo owns shares of Seaspan. The Motley Fool recommends Seaspan. 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.

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Atlas Corp. Stock Quote
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