When the first major company in an industry reports its earnings, it often sets the tone for others in the same space. Navios Maritime Partners' (NYSE:NMM) earnings release was no different. Following Navios's good results and great commentary, dry-shipping stocks such as DryShips, (NASDAQ:DRYS) and Genco Shipping & Trading (NYSE:GNK) posted impressive stock price gains of their own. Navios' outlook seems to signal smooth waters ahead for the shipping industry.
On Halloween day, Navios Maritime Partners announced third-quarter results. Its revenue and net income were strong, as expected. Navios' fleet is on long-term fixed-contracted rates, so the odds were low that its top and bottom lines would surprise investors in either direction. But while Navios's actually earnings weren't a big deal, its outlook and response to those earnings definitely was.
In the way of its strong earnings, Navios announced a quarterly dividend of $0.4425 per share; it's committed to pay at least that much through the end of 2014. Navios CEO Angeliki Frangou said, "We believe that we are positioned to increase distributions in the medium term as the dry bulk market improves."
Navios appears to be ready to open its wallet. This suggests its confidence extends beyond 2014, and that it truly believes the shipping industry has reached a bottom.
The conference call that followed was more upbeat than ever. In her opening paragraph, Frangou said of the 11.7% dividend yield, "We believe that in time investors will find Navios Partners yield extremely attractive." That's code for "higher stock prices and a sustained dividend." Frangou also said "...the drybulk environment has brightened significantly."
On top of this, she gave details about shrinking capacity in the industry. Many dry bulk ships are becoming too old to operate and are being sold off as scrap medal. At the same time, orders for new ships are not high enough to meet the demand Navios anticipates.
Executive vice-president George Achniotis added: "...significant additional iron ore export capacity in both Brazil and Australia should support earnings especially in the Capesize sector. Both the Panamax and Supramax sectors should receive support over the medium to long-term by Chinese coal and grain imports."
Iron ore shipments have been largely responsible for the 2013 improvement in dry-shipping thus far. Having "significant additional export capacity" going forward, in addition to what's already been taking place, would be fantastic for the shipping companies. Based on Achniotis' comments, Panamax and Supramax ships' growing popularity heightens their chances of higher rates and higher contract deals.
Final foolish thoughts
If all of the positive comments from Navios Maritime Partners prove true, other dry shippers could see drastic improvement in their fundamentals.
DryShips reports on Nov. 4, with a conference call the following day. Genco Shipping & Trading reports on Nov. 7. See whether their industry outlook concurs with Navios's. If they are all in agreement about good times ahead for the industry, all three stocks could rise going forward.
Keep in mind that DryShips and Genco Shipping & Trading have large amounts of debt, so they need a sustained recovery in the business to keep in good favor with their lenders. Additionally, keep close tabs on the daily spot rate environment, to make sure rates are going in the direction companies such as Navios Maritime Partners believes they are.
Oil prices and OPEC