DryShips Posts Murky Quarter

DryShips posts a quarter full of charges, while a drillships IPO is looking more and more distant, analysts say.
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(DryShips article updated from Wednesday, May 12 with additional information on DryShips earnings and additional analyst commentary.)

ATHENS (

TheStreet

) --

DryShips

(DRYS) - Get Report

reported first-quarter numbers Wednesday marred by a series of charges and one-time items.

The operator of dry-bulk cargo ships and deepwater oil-drilling vessels posted net income of $5.7 million, or a penny a share. That reverses the big loss taken by DryShips a year ago amid a collapse in shipping rates, when the company reported red ink of $119 million, or $1.09 a share.

Still, the company said a slew of items in the quarter hurt its results, including the amortized costs of moving one of its drillships from the North Sea to the Black Sea, where it began drilling under a new contract in late February.

Excluding those items, DryShips said it would have earned $67.6 million, or 27 cents a share, which would appear to top the consensus Wall Street estimate of 22 cents a share, according to a survey of sell-side analysts by

Thomson Reuters.

But DryShips chose to strip out the $14.5 million in amortized stock compensation that it doled out to executives. Adding that figure (6 cents per share, DryShips said) back in, the company had adjusted earnings of 21 cents a share, missing the consensus by a penny. DryShips, which offered up a similarly muddy report in the fourth quarter, also chose to exclude non-cash accruals for preferred stocks, which amounted to 2 cents a share.

As

Credit Suisse

(CS) - Get Report

analyst Greg Lewis pointed out in a note to clients Thursday morning, "These items are non-cash but are not one-time charges, and reduce income to common shareholders." Thus, they ought to be included in all forecasting models, which would put DryShips' adjusted income at 19 cents a share.

Revenue also fell shy of the Wall Street target. DryShips reported a top line of $194 million, basically flat with last year, but worse than the $202.8 million that analysts on average were expecting.

In his prepared statement, DryShips CEO George Economou offered his typically optimistic outlook on the dry bulk market. "While 2009 was largely a China story, the first quarter has seen demand from the rest of the world to return to pre-crisis levels, as evidenced by the global iron ore imports," he said.

In April, the company diluted shareholders with a convertible bond offering in an effort shore up its balance sheet and find financing for a pair of drillships being constructed at a South Korean shipyard. Meanwhile, the funding for two other such vessels

may require renegotiation

. DryShips has plans to sell off the drillships business in an IPO sometime this year, though the offering has suffered a series of delays.

Economou said in the earnings release that his company is "making progress" on both finding financing for the unfunded pair of ships, as well as inking a deal to hire out two of its four yet-to-be-completed vessels to an energy exploration company. Fixing a long-term contract for those ships is a

precondition for the IPO

; investors have been keenly awaiting just such an announcement since last year.

They may have to keep waiting. Oil drilling IPOs, after all, may have lost their allure in the wake of the ongoing disaster in the Gulf of Mexico, where the exploded

BP

(BP) - Get Report

and

Transocean

(RIG) - Get Report

oil rig continues to gush crude. In a research report Thursday, Omar Nokta, a shipping stock analyst at Dahlman Rose, said as much. "The recent spill ... is likely to limit investor appetite for less-experienced drilling contractors."

Nokta also indicated that rates to hire out drilling rigs have declined to around $400,000 a day, market weakness that may further cloud a drillships IPO.

In morning trading Thursday, DryShips' stock was seesawing between positive and negative territory. At 10:10 EDT, the shares were trading at $5.51, down 9 cents, or 1.6%.

The market reaction to the company's first quarter continued a trend this earnings season, as investors sell on the news. Shares of

Genco Shipping & Trading

(GNK) - Get Report

and

Excel Maritime

(EXM)

also declined in the wake of their quarterly reports, despite relatively innocuous results.

-- Written by Scott Eden in New York

RELATED STORIES:

>>Dry Bulk's High Beta Takes Sector Down

>>Genco Shipping Falls Despite OK Quarter

>>DryShips' Drillships Hit Another Wave

>>DryShips COO Talks Drillships IPO

;p-`

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.