International shipping company Frontline Ltd. (NYSE: FRO) reported third-quarter earnings prior to the Thanksgiving holiday last week, and the results were hit and miss. However, when compared to where the company has come from the past couple of years, the numbers are promising.
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The shipping and tanker giant posted revenues of $251 million in the quarter, up about 8% from the prior year. However, when removing allowances for voyage expenses and commissions, revenues actually slipped 4% to $180 million. On the earnings side the company fared a little better, reporting a $12 million profit (16 cents a share), recovering from last year's Q3 when it reported a $5.6 million loss. This still fell short of analysts' estimates as the Street was looking for 18 cents a share. Additionally, as has become a trend for the firm, the quarter's earnings included a $6.8 million gain from the amortization of a deferred gain on lease terminations. In the same quarter last year, Frontline reported a similar gain to the tune of $3.1 million. Perhaps a better measure of the company's fortunes is operating income, which was $48.4 million, up an impressive 72% for the year.
A Look At Time-Charter Equivalents
Taking a look at Frontline's average time-charter equivalents (TCE), a metric used in the shipping industry to measure the average revenue performance for a given vessel, the numbers were down for its largest crude tankers (VLCCs), falling 7% from last year. However, time charters were up 14% and 15% for its Suezmax and Suezmax OBO (oil, bulk, ore) ships, showing that demand appears to be slowly but surely picking up. Things may prove difficult in November, however, as the company's breakeven TCEs for its VLCCs and Suezmax tankers are an estimated $31,300 and $24,900, respectively. Average TCEs in Q3 were $29,800 and $18,200 for these same vessels.
Frontline isn't alone, however, in its struggles. Ship Finance International (NYSE: SFL) and Tsakos Energy Navigation (NYSE: TNP) both reported earnings earlier in the week and cited weak rates as the primary reason behind their less-than-inspiring earnings.
As previously mentioned, this past quarter's results were a mixed bag, and investors have a lot to consider when looking at the shipping industry in upcoming months. Frontline recently received the final VLCC and Suezmax vessels from a couple of Asian shipbuilders in the past quarter, and the company renegotiated a previous order from 2008 at more favorable rates. It also bumped up the order, adding an option for additional ships if required. Frontline obviously feels that now is a good time to expand its fleet, and this may be a tipoff to potential investors that the tide is about to turn in the shipping industry. (To learn more, see The Baltic Dry Index: Evaluating An Economic Recovery.)