The unprecedented rise in oil prices recently has weighed on certain companies' profit margins and hurt economic growth more than others. Crude and petroleum products tanker firm General Maritime
What do the fundamentals say?
Followed by a 10% decline in net voyage revenues, General Maritime's first-quarter net loss worsened to $31.5 million from $9 million a year ago. Higher interest expenses and a nearly 39% jump in voyage expenses led the company to report a steeper loss this quarter compared with a year ago. Those voyage expenses were aggravated, of course, because of higher fuel costs.
General Maritime's weakness isn't unique to the industry. The entire shipping sphere is bearing the brunt of weak demand. Companies such as Overseas Shipholding Group
In rough waters
The biggest challenge facing General Maritime is liquidity. To get a clear picture, it's better to compare General Maritime with its competitors rather than measuring its worth in isolation.
To begin, let's analyze the company's debt-to-equity ratio. General Maritime's stands at 436.4% compared with peers Frontline
Thin ice
Meanwhile, General Maritime's interest coverage ratio has also declined to 0.8 this quarter from 1.7 a year ago. Frontline and Teekay are better off with interest coverage ratios of 2.0 and 4.5, respectively.
In order to address liquidity concerns, General Maritime has recently extended its 2005 revolving credit facility from Oaktree Capital Management. The company expects to utilize credit to get itself out of the stormy seas. But by doing so, it will only make the general state of the balance sheet worse, which is precisely why debt is such a tricky tool to manage.
I have already spoken about General Maritime's mounting debts in one of my previous articles. The company, despite its efforts to come out of the losses, is getting entangled in a debt spiral.
The company has reported a rise in net cash from operating activities, which has increased to $24 million this quarter from $19 million a year ago. This is one glimmer of hope within the recent numbers.
Where does it stand?
Rising prices have hit the global shipping industry hard. The majority of the shipping companies -- both dry bulk and sea-borne energy carriers -- have leaned upon credit to overcome what hopefully will only be short-term liquidity concerns. Although shipping companies are trying to diversify their risks, it remains to be seen if those steps would bear fruit.
The Foolish bottom line
General Maritime doesn't look stable at the moment. The company faces twin tasks of cutting debt and paring costs before it can return to profitability amid a larger industry that is struggling. I'd prefer to remain on the sidelines and wait for some visibility before I commit myself to the stock.