Will Diana Shipping Lead DryShips and Navios Back to Prosperity?

Diana Shipping (DSX 0.52%) will release its quarterly report on Tuesday and, despite persistently low bulk-shipping rates, the stock has climbed recently to its best levels in more than two years. Despite having far less revenue than rivals DryShips (DRYS) and Navios Maritime Partners (NYSE: NMM), Diana Shipping's more stable debt position could help it become a growth leader if conditions in dry-bulk shipping continue to improve.

For years, the dry-bulk shipping industry has been a victim of the slowdown in global economic growth, with the big lag in recovery resulting from many shippers having contracted to build new vessels during the boom times of the mid-2000s. That left them with a glut of shipping capacity when the financial crisis struck, sending levels on the Baltic Dry Index down more than 90% and turning what had been an extremely lucrative business into a cyclical nightmare for Diana, DryShips, and Navios. Now, though, shipping rates have started to bounce back, giving shippers opportunities to get their profits back up. Let's take an early look at what's been happening with Diana Shipping over the past quarter and what we're likely to see in its report.

Stats on Diana Shipping

Source: Yahoo! Finance.

How can Diana Shipping earnings recover?
Analysts have kept their views on Diana Shipping earnings relatively stable in recent months, making just a small penny-per-share cut in full-year 2013 loss estimates. The stock has continued moving favorably with an 8% climb since mid-August.

Diana Shipping's struggles were evident in its second-quarter results. The company's time-charter equivalent fell by almost half, dropping below $13,000 and sending Diana to a loss, reversing a year-ago gain on a 30% drop in revenue. Operating expenses also rose precipitously, creating further challenges and keeping Diana further away from returning to profitability.

But more recently, we've seen signs of rising strength in the bulk-shipping industry. Last week, DryShips CEO George Economou said he's "cautiously optimistic, expecting a sustainable recovery in 2014 and beyond, and believ[ing] DryShips is well positioned to take advantage of the ensuing recovery in charter rates." Navios CEO Angeliki Frangou also pointed to shrinking capacity in the dry-bulk industry as supporting improvement in pricing conditions, and her company has seen rising exports from Brazil and Australia to major importers like China.

Yet Diana's biggest asset might be its relatively healthy balance sheet. Debt levels remain a concern for DryShips, as it cost the company more than two and a half times as much to maintain its debt as it made in EBITDA for the quarter. Ongoing secondary offerings of stock have helped DryShips support its debt, but at the cost of dilution for existing shareholders. By contrast, having lower levels of debt gives Diana the flexibility to make strategic moves like buying assets from struggling rivals.

In the Diana Shipping earnings report, watch to see how the company's results compare with those of DryShips and Navios Maritime Partners. With investors already banking on a recovery, Diana needs to deliver to avoid causing disappointment for shareholders.

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