Although the world's carriers of dry bulk products have encountered stunningly challenging business conditions for a few years now, the latest wave of weakness invokes a heightened level of concern for the very survival of select operators as charter rates hover near breakeven levels.
For Genco Shipping & Trading (NYSE: GNK) and its 2010 spinoff Baltic Trading (NYSE: BALT), however, I do not perceive a threat of outright failure even if larger rival Diana Shipping (NYSE: DSX) proves correct with its dire outlook for the sector. While I wouldn't touch some shippers with a 10-foot pole -- and special cases like DryShips (Nasdaq: DRYS) may be suitable only for the bravest (or most foolhardy?) Fools -- I consider both Genco and Baltic relative safe havens within a seriously dangerous corner of the investment world.
Both operators released second-quarter earnings this week, offering a glimpse of their respective resilience to some of the worst operating conditions the industry has ever faced. It's crunch time for every dry bulk hauler -- time to show what they're made of. Genco offloaded profit of $10.1 million, crushing the consensus estimate by $0.09 per share. By adding 16 vessels to its fleet over the past year in a bold countercyclical growth spurt, Genco has managed to defend its bottom line even against a backbreaking 40% collapse in the average charter rate achieved for each vessel.
Without the cushion of longer-term charters to ward off the full force of this rate collapse, Baltic Trading's spot-market-focused business model sent the shipper reeling from a 52% drop in average daily revenue per vessel. Not even Baltic's 209% surge in available operating days -- as the fleet grew from an average of three vessels in the prior-year period to nine vessels this time around -- sufficed to overcome the carnage, as rates dipped below the carrier's break-even threshold. To console shareholders for the $0.4 million loss, however, Baltic Trading sustained its quarterly dividend with a scheduled payout of $0.10 per share.
The core of a supportive investment thesis for both Genco and Baltic can be found in this recent Foolish roundtable discussion. My colleague Sean Williams has taken a shine to Genco's preference for shorter-term charter contracts, with the idea that contracts will be promptly renegotiated as rates eventually improve. Genco also commands a powerful cash position for a shipper that's emerging from such a rapid growth spurt. While Baltic could use some extra cash, I maintain that a deep disconnect between the its market capitalization and the asset value of its lightly leveraged fleet offers the company another sort of resilience: a capacity to grow its way through further weakness by taking on some additional debt and capitalizing on distressed asset sales as the industry strikes an inevitable long-term bottom. I also believe Genco's involvement with Baltic implies another potential lifeline of protection from a worst-case scenario, and I look forward -- patiently -- to the long-term fruits of its generous dividend policy.
- Add Genco Shipping & Trading to My Watchlist.
- Add Baltic Trading to My Watchlist.
- Add DryShips to My Watchlist.
- Add Diana Shipping to My Watchlist.
