Frontline Beats Street, Sinks New Ship Orders

Oil shipper Frontline(FRO Quote) easily surpassed Wall Street forecasts with its latest quarterly earnings, but weak shipping rates continued to hang over the industry, severely shrinking the company's profit.

With demand looking to stay soft into summer, the world's largest petroleum carrier also said in its first-quarter earnings report released Thursday that it will scrap half a billion dollars worth of new-ship orders.

Frontline, based in Bermuda, reported a 65% decline in earnings, to $76.6 million, or 98 cents a share, from $221 million, or $2.95 a share a year earlier. Analysts were looking for per-share earnings of 69 cents a share.

Revenue fell 32% to $356.6 million.

Still, Frontline used the phrase "livable earnings" to describe the just-ended quarter. Things, in other words, could have been worse, if not for lower fuel prices, which reduced overhead costs, and an oil-market contango early in the quarter that increased demand for storing crude in tankers anchored offshore.

Frontline said in its press release that it expects the tanker-as-storage trend to continue into the second quarter. Six of its very-large crude carriers (or VLCCs), it added, are currently chartered out on "medium-term" storage contracts.

Fundamentally, though, pricing doesn't look to improve in the near term, and Frontline fairly said as much in its earnings release before the opening bell Thursday. The company's average daily price for its VLCCs in the first quarter was 39% less than what it charged in 2008. And, looking ahead, Frontline cited data from Clarksons, the U.K. shipping-services firm, which indicated that second-quarter spot-market rates for VLCCs have been $24,700. A year ago, the going rate was more than $130,000.