Tuesday, February 23, 2010

DryShips Inc. (NASDAQ: DRYS): Q4 Earnings Preview 2009

DryShips Inc. (NASDAQ: DRYS) is scheduled to release its fiscal fourth-quarter 2009 financial results before the market open on Thursday, February 25, 2010. Analysts, on average, expect the company to report earnings of 23 cents a share on revenue of $215.65 million. In the year ago period, the company posted earnings of 25 cents per share on revenue of $217.89 million.

DryShips, Inc. engages in the ownership and operation of drybulk carriers that operate worldwide. The company's fleet carries various drybulk commodities, including coal, iron ore, grains, bauxite, phosphate, fertilizers, and steel products. DryShips owns a fleet of 39 drybulk carriers (including newbuildings) comprising 7 Capesize, 30 Panamax and 2 Supramax, with a combined deadweight tonnage of over 3.5 million tons, 2 ultra deep water semisubmersible drilling rigs and 4 ultra deep water newbuilding drillships.

Shipping companies were hit hard by the economic dowturn and shipping rates plunged by more than 90% as global recession curtailed demand for commodities. After slowing to 3.0% in 2008, global trade volumes contracted by an estimated 13% in 2009--the first contraction since 1982 and the sharpest in the postwar period. In the preceding fiscal-third quarter, the Athens, Greece based DryShips company said that its net income plunged to $35.6 million or $0.12 per share, compared with $180.0 million or $4.13 per share in the prior-year quarter. Excluding one-time items, third-quarter net income declined to $74.9 million or $0.27 per share from $151.0 million or $3.53 per share reported for the year-ago period. Revenue increased to $328.03 million from $228.2 million in the comparable period one-year ago. Analysts, on average, expected the company to report earnings of $0.20 per share on revenue of $210.65 million.

Looking ahead, though the company expects dry-bulk shipping demand to remain strong for the coming years, it anticipates that cancellations and delays in orders will alleviate the oversupply problem that it might face in the future quarters. "Our drybulk fleet is now virtually fully fixed for the remainder of 2009 and 2010 and 77% fixed for 2011 at healthy levels and we are prepared to leverage the volatility in freight rates in the future through further vessel acquisitions." George Economou, Chairman and chief executive officer said in November.

Meanwhile, trade flows have slightly moderated in some countries in fourth quarter 2009. As the world has begun to emerge from the downturn, the Baltic Dry Index shows that shipping rates have begun to recover from their lows, though they still remain far below peak levels. he Baltic Dry Index rose 200% in 2009, led by Chinese commodity demand and a pickup in commodity prices, but the index remains far below the record levels of 2008.

However, a short-term glut in shipping market seems inevitable as a bevy of new dryships are expected to hit the market later this year. According to a Bloomberg survey, the capesize fleet will expand by 20 percent this year, outstripping the 8 percent gain in demand. This may also again put pressure on shipping rates.

The company's stock currently trades at a forward P/E (fye 26-Dec-10) of 6.21. In terms of stock performance, DryShips shares have gained nearly 43% over the past year.

Full Disclosure: None.
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