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Seaspan Corporation Slowly Starts Turning Things Around

By Matthew DiLallo - May 3, 2018 at 11:31AM

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The containership leasing company completed a needle-moving acquisition that should drive earnings much higher over the next year.

Seaspan Corporation (ATCO 3.00%) has spent the past couple of years working to turn around its financial results, which have been sinking due to weakness in the container shipping sector. Those efforts are starting to pay off and helped drive a double-digit year-over-year improvement in the company's revenue and earnings. Meanwhile, with it recently completing a game-changing acquisition, results should continue heading higher over the next year.

Seaspan Corporation results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$224.8 million

$201.3 million

11.7%

Normalized net earnings

$35.3 million

$31.8 million

10.9%

Normalized EPS

$0.13

$0.15

-13.3%

Data source: Seaspan Corporation.

A container ship at sea.

Image source: Getty Images.

What happened with Seaspan Corporation this quarter?

Seaspan is starting to turn things around:

  • Seaspan's revenue rose year over year as well as versus the fourth quarter. It was also well ahead of the company's $215 million to $219 million guidance range. However, that was mainly because the company acquired 16 ships toward the end of the quarter after buying the rest of GCI that it didn't already own. The company also took delivery of one newly built vessel and acquired two other smaller ones during the quarter.
  • Earnings, meanwhile, followed revenue higher. The company kept its costs in check as ship operating expenses, general and administrative costs, operating lease expenses, and interest charges all came in within its guidance range.
  • Earnings per share, however, declined double digits because the company sold stock over the past year to shore up its balance sheet so that it could make acquisitions.
  • The company further bolstered its finances during the quarter by closing a $100 million credit facility. Seaspan also secured an additional $250 million investment from Fairfax Financial that it will receive next January.

What management had to say 

CEO Bing Chen commented on the quarter, saying that "over the past few months, we have made significant progress across multiple areas within the Company." One of the most important was completing the acquisition of CGI because it "achieved a number of important strategic objectives for the company while being accretive to earnings per share." Chen pointed out that:

On the strategic side, the acquisition of GCI improved our fleet composition as we increased our exposure to larger, more modern containerships that are in demand by our customers. In addition, we expanded our relationships with our customers, significantly increasing our contracted future revenue and EBITDA. Finally, the GCI acquisition provided an opportunity for Seaspan to expand its partnership with Fairfax and other financing partners, reinforcing the strength of our integrated platform.

Looking forward 

In the near-term, the CGI deal should boost earnings per share by at least 20% over the next year. That's in addition to the incremental income the company should earn from the newbuilds it has coming down the pipeline as well as the expectation that it can secure more favorable charter rates on vessels with contracts that expire this year due to the improvement in shipping rates. Meanwhile, the company is "actively seeking opportunities to grow our business," according to Chen, who noted that the company wants to be a consolidator in the fragmented containership industry.

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