Monday, November 15, 2010

DryShips Inc. (NASDAQ: DRYS): Q3 Earnings Preview

DryShips Inc. (NASDAQ: DRYS) is scheduled to release its third-quarter earnings after the market close on Wednesday, November 17, 2010. Analysts, on average, expect the company to report earnings of 25 cents a share on revenue of $216.76 million. In the year ago period, the company reported earnings of 27 cents per share on revenue of $228.20 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. As of Oct 15, 2010, DryShips owned 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 and 6 offshore oil deep water drilling units, comprising of 2 ultra deep water semisubmersible drilling rigs and 4 ultra deep water newbuilding drillships.

In the preceding second quarter, the Athens, Greece based company's net income was $8.7 million, or 2 cents per share, compared to $51.5 million, or 24 cents per share, in the year-earlier period. On an adjusted basis, the company earned 30 cents per share in the latest quarter. Revenue increased to $224.24 million from $207.51 million. Analysts, on average, expected the company to report earnings of 22 cents per share on revenue of $216.17 million.

Late in September, the company announced that its fully-owned subsidiary Ocean Rig UDW Inc. has received a Letter of Award from subsidiaries of Vanco Overseas Energy Limited for projects in which Vanco is operator and LUKOIL Overseas is majority co-venturer, for a five well contract for exploration drilling offshore Ghana and Cote d'Ivoire for a period of about one year with one drillship, commencing in the second quarter of 2011. The value of the contracts is approximately $160 million. The contract may be extended for an additional year or an additional well, prior to the completion of operations on the second well in the program.

Recently, the company said that its fully-owned subsidiary Ocean Rig UDW Inc. has received a Letter of Intent for the Eirik Raude from a British exploration company. The Letter of Intent is for a two well contract for exploration drilling offshore the Falkland Islands for a period of about 90 days, commencing in the fourth quarter of 2011, immediately after the completion of the current contract. The contract value is approximately USD 77 million. There are three further optional wells that could extend the contract by 135 days. The contract is subject to final documentation.

The company has benefited from a rebound in global trade flows. Looking ahead, analysts expect shipping freight rates to remain stable for the rest of the year because of increasing demand from China, which is the biggest consumer of the steel-making raw material. The steelmaking raw material constitutes the largest source of demand for dry-bulk shipping. Moreover, growing thermal coal demand in China, due to expectations for a cold winter, wis also set to support shipping rates in the coming weeks.

However, Baltic Dry Index index has been largely erratic this year, as it was in 2009, because of swings in Chinese demand for iron ore, the primary ingredient of steel. Shipping rates had staged a short rally in late October, but growing vessel availability had eroded gains earlier this week.

In terms of stock performance, DryShips shares are down nearly 3% since the beginning of the year.

Full Disclosure: None.
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