Diana Shipping: 'We Fear a Glut'

Diana Shipping meets Wall Street targets, but reiterates its bearish stance about the possibility of an oversupply of ships.
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(Updated to provide analyst commentary and for stock-price movement.)

ATHENS (

TheStreet

) --

Diana Shipping

(DSX) - Get Report

reported a steady-as-she-goes fourth quarter Tuesday, matching analysts' profit estimates, even as the company once again sounded its bearish view of the industry's supply-demand balance.

Diana has made no secret of its fear that a glut of newly built ships could spark another downcycle -- if not a full-scale bust -- in the dry-bulk shipping industry.

This time, the company's chief, Simeon Palios, said in a prepared statement, "It is our view that the actual deliveries of dry bulk vessels in the next two years will not be easily absorbed by the growth in demand, although demand is expected to be more solid than in the recent recessionary period."

The outlook for shipping supply and demand has split the industry; bearish and bulllish camps have formed, with Diana firmly in the former.

Palios and his chief lieutenant, Diana President Anastassis "Stacey" Margaronis, did nothing to qualify their cautious house view during a conference call with analysts Tuesday morning -- and the maintenance of that circumspect outlook may have spooked investors some.

In midday trading Thursday, Diana shares were losing 82 cents, or 5.7%, to $13.60. Volume reached 1.2 million shares; average daily turnover is about 1.6 million.

Other dry-bulk stocks were falling sharply Tuesday as well. Matters weren't helped by disappointing results from

Navios Maritime Holdings

(NM) - Get Report

, which missed Wall Street's profit target by three cents a share. Navios shares were down 6.7%.

Praised by analysts throughout the maritime-finance world for its stalwart balance sheet and deliberate strategy, Diana has a widely known plan to expand its fleet by snapping up ships opportunistically. Which is to say, the company wants to

exploit the declining ship values that it believes will result from a coming vessel oversupply

by acquiring ships on the cheap.

Indeed, on the conference call Tuesday, Diana executives made the direct connection, noting that day rates for seaborne transportation services move hand-in-hand with ship values. Palios, on the call, reiterated that his company was looking to deploy cash to buy ships -- but not yet. Implied in this statement is that Pelios believes shipping rates will go lower.

On the other hand, executives on the call made reference to the possibility of 15% growth in Chinese importation of iron ore -- a number that would imply enough demand to soak up quite a bit of supply, perhaps as many as 100 capesize ships, the type of bulk carrier that specializes in hauling iron ore.

Credit Suisse's shipping analyst, Gregg Lewis, believes as much. "Concerns about the orderbook are not new and we believe have already been impacted in the stocks," he wrote in a note to clients Tuesday morning. "Additionally, we believe the potential for less of the orderbook, not more, being delivered over the next 12 months could lead to higher than

expected freight rates."

Diana has a two year plan to expand its fleet, though it hasn't offered a specific growth target. Its most recent purchase, in December, was a 76,000-deadweight-ton panamax ship, the

Melite

. Last month, Diana also announced the creation of a container-ship venture, which it will stake with a $50 million investment.

Diana's move into container ships has been controversial; some have worried that the venture may muddy what was once a pure-play dry-bulk company.

As for Diana's fourth-quarter results, comparisons with a year ago remain treacherous. In the last part of 2008, rates hadn't plunged to the depths they would in the first period of 2009. Thus, year-over-year comparisons will almost assuredly grow easier for Diana and its dry-bulk peers in 2010.

For the just-ended quarter, Diana said it earned $27.6 million, or 34 cents a share, down 49% from the $54.2 million, or 72 cents a share, it posted a year earlier.

Revenue tumbled 30% to $58.6 million from $84.3 million a year ago.

Both bottom and top lines matched Wall Street expectations. Analysts were looking for 34 cents a share on revenue of $57 million, according to a sell-side survey by Thomson Reuters.

Across all vessel sizes, Diana said, day rates averaged about $31,000 during the fourth quarter, down from $45,824 in the corresponding period of 2008.

Diana's report comes as the

merchant-marine shipping sector kicks off its fourth-quarter earnings season in earnest

.

Paragon Shipping

(PRGN)

reported Monday night and Navios Tuesday morning. Fan favorite

DryShips

(DRYS) - Get Report

is scheduled to release results on Thursday.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.