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Dry Bulk Profits Held Back by Too Many Ships

Stocks in this article: DRYS EGLE EXM GNK

Corrected to reflect anticipated quarterly loss for Eagle Bulk

NEW YORK ( TheStreet) -- The dry bulk shippers are still dealing with overcapacity, leading to low expectations and scant positive catalysts for second-quarter earnings season.

The companies thrived in 2007 and 2008 on massive demand for commodities, driven by China's rapid growth. This led the industry to place orders for additional vessels in anticipation of an extended boom. When the U.S. sank into recession, the resulting slowdown in global demand took a toll on volume and now there are too many ships, weighing on freight rates.

Demand for commodities remains robust (look no further than record steel and coal production in China) but it's nowhere near the 2007-2008 levels, which means that a lot of empty vessels are docked at ports and costing companies a good bit of upkeep.

"This is more than a down quarter, this is more of a down year," said Jeffrey Landsberg, analyst and founder of Commodore Research.

Excel Maritime Carriers (EXM) reported a loss of $15.7 million, or 19 cents a share, for the second quarter as revenue fell 14% year-over-year to $92 million.

Genco Shipping & Trading (GNK) reported net income of $10.1 million, or 29 cents a share, for the June period on revenue of $98.5 million, a 6.5% drop. Profits were less than a third of last year's total.

Next up is DryShips (DRYS), which reports its results on Tuesday, hoping to buck the trend.

Wall Street is looking for earnings of 18 cents a share on revenue of $263.6 million, according to the average estimate of analysts polled by Thomson Reuters.

The Athens, Greece-based company announced on July 26 that it plants to acquire the remaining 22% stake in OceanFreight (OCNF) that it doesn't already own.

"The acquisition of OceanFreight is not a slam dunk, but it improves Dry' charter-free NAV net asset value , even in a weak dry bulk market," Urs Dur, an analyst at Lazard Capital Markets, wrote in a note. But he added that he doesn't expect the deal to move the needle much on earnings. Dur reiterated a buy rating.

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