Wednesday, March 30, 2011

DryShips Inc. (NASDAQ: DRYS): Q4 Earnings Preview 2010

DryShips Inc. (NASDAQ: DRYS) is likely to release its fourth-quarter earnings after the closing bell on Wednesday, March 30, 2011. Analysts, on average, expect the company to report earnings of 26 cents per share on revenue of $221.12 million. In the year ago period, the company reported earnings of 19 cents per share on revenue of $193.46 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 is somewhat unique in the shipping industry in that it operates both drybulk carriers and also offshore oil deep water drilling units. As of January 4 2011, 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 ultra deepwater drilling units, comprising of 2 ultra deepwater semisubmersible drilling rigs and 4 ultra deepwater newbuilding drillships, three of which will be delivered in 2011.

In the preceding third quarter, the Athens, Greece based company's net income was $49.3 million, or 18 cents per share, compared with a profit of $31.4 million, or 11 cents per share, in the prior-year period. On an adjusted basis, the company earned 38 cents per share in the latest quarter. Revenue rose to $225.5 million from $222.2 million. Analysts, on average, expected the company to report earnings of 25 cents per share on revenue of $216.92 million.

At its last earnings call in November, DryShips declared that over 80% of its shipdays in 2011 are fixed at around $37,000 per day, which will help the company to avoid spot-market volatility. For 2012, almost 40% of drybulk fleets are already fixed. The company continues with its fleet renewal and expansion strategy in the drybulk sector, replacing older tonnage with newer and larger vessels. Furthermore, the company also announced that the rates for ultra deepwater rigs have bottomed out in the third quarter of 2010 at around low-$400,000 per day range. After that the scenario will become more favorable since the rates are trending upward and demand for drilling rig may surpass supply in 2011.

The dry bulk shipping industries' fortunes are closely tied to global growth as these ships are responsible for carrying the materials required in economic expansion. However , despite improving global macroeconomic scenario, the financial condition of this industry is worse than what it was a year or two ago. An oversupply of ships and mediocre demand has severely damaged the drybulk industry and has forced companies to search elsewhere for revenues. The traditional indicator of the industry's health, the Baltic Dry Index, has plummeted in 2011 as demand for dry-bulk shipping has fallen alongside commerce levels. The Baltic Dry Index has been on the slide since October. The index has lost more than 70% of its value in the last month or so and having retreated to a 2-year. The index slipped hard in January as flooding in Queensland -- the richest coal producing province in Australia -- shut down mines and curbed volumes of cargo to be delivered. Over that same period, average rates for short-term charters of the largest dry bulk carriers, called "Capesize" ships, have fallen from $46,284 a day to $10,285 in the same period -- a ghastly statistic considering most Capesize ships incur operating costs of at least $15,000 a day.

DryShips is steadily transforming itself as a drillship company from a drybulk cargo operator. Therefore, both the top line and bottom line are benefiting from lucrative ultra deep-water oil drilling industry. Early in January, the company announced that its subsidiary Ocean Rig UDW Inc. received contracts worth a combined $495 million for two rigs from Cairn Energy. On December 21, DryShips closed a share-offering of Ocean Rig UDW by way of a private placement that brought in gross proceeds of $500 million. DryShips said the proceeds of the offering are to be used to finance the construction costs of the ultra deepwater newbuilding drillships under construction at Samsung, exercise options to build further ultra deepwater drillships and general corporate purposes. Following this transaction DryShips Inc. owns approximately 78% of Ocean Rig UDW Inc.

Dryships Inc. has also invested a great deal of money trying to establish a presence in the oil-tanker market. In December, the company agreed with a Korean shipyard to purchase 12 tankers for about $770 million, including over $3 million per vessel in extra items. DryShips plans to use its tanker investments for a spinoff or initial public offering. Though the tanker market is realizing low freight rates, oil demand from Asian economies like China and India are expected to boost market conditions, the company said. The company is revamping its business, as it sees opportunities for both the drybulk and tanker segments. DryShips towards this end is mulling a standalone tankers-entity in 2011.

Full Disclosure: None.
Related Posts with Thumbnails

Wikinvest Wire