Seaspan Corporation's (ATCO) financial results have slowly started turning around in recent quarters thanks to the improvements in the container shipping market. And the company accelerated its rebound in the second quarter after completing a needle-moving acquisition. That deal, along with some recent financial arrangements, put the company in a stronger position to deliver improving financial results in the coming years.
Seaspan Corporation results: The raw numbers
|
Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$281.7 million |
$204.6 million |
37.7% |
|
Normalized net earnings |
$52.5 million |
$35.5 million |
47.7% |
|
Normalized earnings per share |
$0.23 |
$0.17 |
35.3% |
Data source: Seaspan Corporation.
Image source: Getty Images.
What happened with Seaspan Corporation this quarter?
Seaspan's turnaround shifted into a higher gear:
- Revenue jumped versus the year-ago period as well as the first quarter of 2018 thanks primarily to the acquisition of GCI, which added 16 vessels to its fleet. The company also benefited from accepting the delivery of four newbuild vessels this year as well as those added last year. Overall, these additions brought its fleet up to 112 ships and added $62 million in revenue during the quarter. Meanwhile, the improvement in the shipping market enabled Seaspan to earn an incremental $7.9 million in revenue during the quarter as it was able to capture higher charter rates on vessels with recently expired contracts.
- Normalized net earnings rose at an even faster pace than revenue because the company kept expense growth at bay. Overall, ship operating expenses only rose 31.1%, while the company kept general and administrative costs to just a 21.2% increase.
- EPS, however, didn't grow quite as fast because the company issued stock in the past year to help fund growth and reduce debt.
- The company furthered its relationship with Fairfax Financial (FRFHF 0.22%) during the quarter as Fairfax committed to investing another $500 million into the company, bringing its total investment up to $1 billion. Fairfax exercised half of the warrants it received as part of the agreement after the quarter closed, resulting in Seaspan receiving $250 million in cash.
What management had to say
CEO Bing Chen commented on the company's progress during the quarter:
I am pleased with our strong operating results for the second quarter. As expected, the acquisition and seamless integration of GCI contributed significantly to our growth. In addition to the vessels acquired through GCI in the first quarter, we grew our operating fleet with the delivery of four 10,000 [20-foot equivalent unit] containerships on long-term fixed-rate charters with CMA CGM, and achieved a utilization rate of 98.6% for the quarter. We remain optimistic about improving industry dynamics for containerships.
As Chen noted, Seaspan's financial results improved dramatically during the second quarter thanks to the acquisition of GCI. Not only did the deal significantly boost Seaspan's fleet, but it also bolstered the company's revenue backlog. At the time of the transaction, GCI had $1.3 billion in contracted revenue, while Seaspan's backlog stood at $4.3 billion. Those contracts enhance Seaspan's ability to significantly increase earnings over the next year.
Looking forward
Seaspan's near-term focus is to use the cash proceeds from the Fairfax transactions as well as the excess cash generated from operations to improve its balance sheet, aiming for an upgrade to an investment-grade credit rating. That will give the company more financial flexibility to pursue additional strategic acquisitions and other growth initiatives in the coming years as it looks to be a consolidator in the containership sector.
