NEW YORK (
) -- Shares of the dry-bulk shipping outfit
jumped more than 12% Thursday on what appeared to be a huge fourth-quarter earnings beat.
On the surface, Excel posted earnings of nearly $77 million, or 95 cents a share, which seemed to blow away the consensus estimate among analysts of just 3 cents a share.
But a closer look at the company's income statement shows that Excel -- which
-- didn't perform nearly as well as it would seem at first blush.
The reason? An accounting oddity created by the company's acquisition of
way back in the spring of 2008. At issue is how Excel books the revenue produced by the ships that joined its fleet after the Quintana purchase.
Many of the vessels Excel acquired with the deal were, at the time, locked into long-term charter contracts at "unfavorable" rates. That is, similar ships doing similar jobs and traveling similar routes in the spring of 2008 were fetching far more per day than Quintana's vessels were getting under their charter arrangements.
And so, when it bought Quintana, Excel decided to book revenue, on paper, from those new ships at the then-going rate -- $50,000 to $60,000 a day -- instead of booking the actual revenue those vessels were, in reality, producing -- roughly $22,000 a day.
To make up for the difference, Excel has amortized the liability over the life of the contracts: The Quintana-era charters will conclude by the end of 2010.
In other words, as much as 90 cents of Excel's reported profit in the fourth quarter was "an accounting phantom," says Scott Burk, an analyst at Oppenheimer & Co. "It doesn't exist."
This isn't the first time Excel shares have popped on a huge -- but fictional -- earnings beat. "I'm surprised to see it again," Burk said.
These accounting methods aren't illegal, and Excel is far from alone in the practice in the dry-bulk trade. But many analysts have decided to use Occam's Razor to cut through the hokum, shunting this "time-charter fair value amortization" from their forecasting models. Other analysts don't.
The resulting earnings estimates produced by analysts are, therefore, all over the map, rendering the average targets calculated by the various Wall Street surveys and polls more mash-up than consensus. For the first quarter of 2010, for example, analysts polled by Thomson Reuters have estimated Excel's bottom line at anywhere from a loss of 5 cents to a profit of 76 cents.
For its part, Excel doesn't provide a separate, adjusted per-share bottom line figure that strips out the amortization. Confusion therefore reigns:
According to Natasha Boyden, Cantor Fitzgerald's shipping analyst, Excel's fourth-quarter earnings came to 17 cents a share, which would still be far better than the 3-cent consensus, but not nearly as wide a margin as it would at first appear. Scott Burk, however, says Excel's clean bottom line in the fourth quarter came to 5 cents a share.
On the top line, Excel's revenue was essentially flat with a year ago.
Thursday afternoon, shares of Excel closed at $5.96, up 65 cents, or 12.2%, on volume of 3.5 million shares, nearly triple the daily average turnover in the name.
Excel's results come amid the shipping industry's biggest week for fourth-quarter earnings reports. So far,
Navios Maritime Holdings
is set to report after the close 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.