Shares of crude oil shipper Frontline Ltd. (FRO 3.09%) sank 11% in the month of May. Rival crude shipper DHT Holdings (DHT 1.62%) did even worse -- down 12.7%.
Why am I discussing both these companies in the same breath? For a couple of reasons, actually. First, both of them reported earnings last month. Second -- one is trying to buy the other.
Let's start off with some good news, and address earnings first. On May 30 (too late to save the month, unfortunately), Frontline reported profits of $0.16 per share, trouncing analyst estimates for just $0.12 in profit. That news drove Frontline stock up several percent in response, but still left it far below its starting price for the month.
Frontline's earnings beat echoed a beat that DHT Holdings delivered earlier in the month. On May 8, DHT reported $0.15 per share in Q1 profits, $0.02 ahead of estimates. As would later be the case with Frontline, the news boosted DHT's stock price in the wake of earnings -- not enough, however, to insulate the stock from declines later in the month.
Now for the bad news. Frontline's profits, while ahead of Wall Street's estimates, were down significantly year over year. Whereas the company earned $0.16 per share on $177.1 million in revenue in Q1 2017, one year ago it had earned $0.50 per share on sales of $227.1 million. Additionally, Frontline noted that although in Q1 its spot rates were above breakeven rates for all three classes of ships that it runs, in Q2, the company expects spot rates to fall below breakeven on Suezmax and Long Range 2 (LR2) size ships. Given that Suezmax and LR2 vessels make up the bulk of Frontline's fleet, this puts profitability for the organization as a whole in question this quarter.
DHT will likely suffer similarly. And as in Frontline's case, DHT has seen steep declines in revenue (down 22% year over year in Q1) and profits. Its $0.15 per-share earnings in Q1 2017 were just half the $0.30 per share DHT earned in Q1 2016.
Frontline is trying to merge its way out of difficulty with an offer to acquire DHT. In April, Frontline again offered to acquire all of DHT's stock in an all-cash deal, offering 0.8 Frontline shares for every 1 share of DHT. DHT declined Frontline's offer, as it has previous offers, and is proceeding instead with a plan to sell a large block of shares to privately held BW Group instead.
With no merger on the table, it seems both these companies will just have to hope for shipping rates to improve.