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Eagle Bulk Shipping Dealing with Choppy Waters
Dry bulk shipper Eagle Bulk Shipping (Nasdaq:EGLE) reported a net loss of $5.8 million, or 9 cents a share for the first quarter of 2011. The quarterly loss reflects an allowance for bad debt expense of $6.6 million due to the bankruptcy filing of one the company's charterers, Korea Line. Absent this charge, Eagle earned 1 cent per share for the quarter. Overall, the quarter reflects the continuing challenges that this industry continues to face.
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Choppy Seas Ahead
Revenues surged 60% for Eagle Bulk during the quarter to $86.7 million compared with $54 million in the year ago quarter. In addition, gross time charter and freight revenues also increased 58%, to $90.4 million, compared to time charter revenues of $57.4 million for the comparable quarter in 2010. Fleet utilization remained a solid 99% during the quarter. Nonetheless, revenue increases were absorbed by a surge in operating expenses to $82 million from $38 million a year ago. Eagle operated 40 ships in 2011 versus 33 a year ago. (For more, see Has Dry Bulk Shipping Reached Low Tide?)
Charter rates continue to remain significantly below pre-recession levels and there is no fundamental reason to suggest a meaningful improvement anytime soon. Drybulk shipping companies went on ship buying binge a few years ago and despite ship cancellations, new ships are still coming on board. Over the past few years, Eagle has taken delivery of 21 new vessels and expects to take six more in 2011.
Balance Sheet Woes
Eagle, like many of its peers, continues to manage a debt load that looks precarious at best. Against $97 million in cash, the balance sheet is saddled with $1.2 billion in debt. Eagle continues work with its creditors via various amendments in order to manage its balance sheet. On the surface, shares look cheap with a market cap of $190 million trading at a single digit P/E. But getting in the way of an otherwise decent business is excessive debt. In terms of fleet, Eagle has one of the better fleets on the water. The smaller size, yet more versatile, Handymax ships can carry a wider variety of cargo evidenced by the continued 99% fleet utilization. But debt remains an anchor.
And for rivals like DryShips (Nasdaq:DRYS), Excel Maritime (NYSE:EXM) and Genco Shipping (NYSE:GNK), the story remains the same. Businesses trying to stay afloat amidst the debt. Today, Genco trades for a P/E of 2.4, but that likely a one-time valuation thanks unlikely to repeat income gains. Genco has a market cap of $288 million and net debt of $1.5 billion.
The Bottom Line
The reality is that maritime ships are the only economical way to transport goods overseas, so business for many of these drybulk shippers is solid. The problem is that too many ships have crippled daily rates. Add to that the explosive ingredient of leverage, and these companies are doing what they can to stay afloat. At the end of day, the industry will exist out of necessity, but for now its hard to ascertain who the ultimate winners will be. (For related reading, see Not All Shipping In Sinking.)
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Choppy Seas Ahead
Revenues surged 60% for Eagle Bulk during the quarter to $86.7 million compared with $54 million in the year ago quarter. In addition, gross time charter and freight revenues also increased 58%, to $90.4 million, compared to time charter revenues of $57.4 million for the comparable quarter in 2010. Fleet utilization remained a solid 99% during the quarter. Nonetheless, revenue increases were absorbed by a surge in operating expenses to $82 million from $38 million a year ago. Eagle operated 40 ships in 2011 versus 33 a year ago. (For more, see Has Dry Bulk Shipping Reached Low Tide?)
Charter rates continue to remain significantly below pre-recession levels and there is no fundamental reason to suggest a meaningful improvement anytime soon. Drybulk shipping companies went on ship buying binge a few years ago and despite ship cancellations, new ships are still coming on board. Over the past few years, Eagle has taken delivery of 21 new vessels and expects to take six more in 2011.
Eagle, like many of its peers, continues to manage a debt load that looks precarious at best. Against $97 million in cash, the balance sheet is saddled with $1.2 billion in debt. Eagle continues work with its creditors via various amendments in order to manage its balance sheet. On the surface, shares look cheap with a market cap of $190 million trading at a single digit P/E. But getting in the way of an otherwise decent business is excessive debt. In terms of fleet, Eagle has one of the better fleets on the water. The smaller size, yet more versatile, Handymax ships can carry a wider variety of cargo evidenced by the continued 99% fleet utilization. But debt remains an anchor.
And for rivals like DryShips (Nasdaq:DRYS), Excel Maritime (NYSE:EXM) and Genco Shipping (NYSE:GNK), the story remains the same. Businesses trying to stay afloat amidst the debt. Today, Genco trades for a P/E of 2.4, but that likely a one-time valuation thanks unlikely to repeat income gains. Genco has a market cap of $288 million and net debt of $1.5 billion.
The Bottom Line
The reality is that maritime ships are the only economical way to transport goods overseas, so business for many of these drybulk shippers is solid. The problem is that too many ships have crippled daily rates. Add to that the explosive ingredient of leverage, and these companies are doing what they can to stay afloat. At the end of day, the industry will exist out of necessity, but for now its hard to ascertain who the ultimate winners will be. (For related reading, see Not All Shipping In Sinking.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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