Ship operators are feeling the heat as a battered dry bulk shipping industry comes to terms with low charter rates, oversupply, and rising fuel costs. Although dry bulkers have shown some resilience of late, as evident from the Baltic Dry Index, the prospects for the rest of the year remain a bit dreary.

Under these overcast conditions last week, Genco Shipping & Trading (NYSE: GNK), the Greek-based dry bulk carrier, reported first-quarter results. Let's analyze Genco's numbers to find out what the future holds.

The numbers
In the first quarter, voyage revenues of Genco's fleet rose marginally to $101.4 million from $94.7 million a year ago. While several dry bulk carriers saw their revenues decline during the first quarter, Genco managed to record a rise in revenues thanks to an increase in its total fleet size, which unfortunately speaks nothing for the company's operational efficiency. That said, total vessels available in this quarter were 59 compared to 35 in the year before.

Considering the number of ships that it added to its fleet, Genco's top line was rather weak. It appears lower time charter equivalents per day ate into Genco's revenues. The TCE, the major constituent of revenues for shipping firms, fell sharply to $19,155 this quarter compared with $30,248 a year ago.

A rise in total operating expenses from $46.2 million in the first quarter of 2010 to $67.7 million this quarter also offset the impact of higher revenues. Total operating expenses were high because of increasing voyage operating expenses and higher depreciation and amortization charges over the period.

These expenses along with higher interest expenses led to a decline in Genco's net income. Net income stood at $12.1 million this quarter compared with $33.1 million in the same period a year ago.

The hurting numbers
A lower net income also weighed on the company's net cash flow from operating activities. The figure, also affected by the lower charter equivalents, fell to $40 million this quarter from $55 million a year ago.

Interestingly, despite huge repayments of loans and credit facilities, the debt-to-EBITDA ratio rose from 4.6 in the first quarter of 2010 to 6.7 this quarter. This is quite higher when compared with competitors like Diana Shipping (NYSE: DSX) and Safe Bulkers (NYSE: SB), which had lower debt-to-EBITDA ratios this quarter. During the quarter both Diana Shipping and Safe Bulkers posted a rise in their revenues. Diana Shipping also saw a rise in net income, but Safe Bulkers' quarterly profit fell 15% from a year ago. Genco needs to build a strong financial structure to fortify its position in the industry.

The Foolish bottom line
With the dry bulk shipping industry showing slow signs of recovery, it is difficult to gauge how Genco will perform in the future. For now, Genco's priority should be to strengthen its financial setup and show its shareholders it is taking concrete steps to boost profitability.

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