Dry-Bulk Shippers Navigate Rocky Session

NEW YORK (TheStreet) -- Dry-bulk shippers Genco Shipping & Trading (GNK) and Eagle Bulk Shipping (EGLE) were off course Tuesday afternoon following a Wall Street Journal report the two are undertaking restructuring advice to cull debt from their balance sheets.

As of the third quarter ended Sep. 30, Eagle Bulk had $1.13 billion in term loans and $37 million paid-in-kind loans on its books, the latter a 141% increase from Dec. 31, 2012. During its respective third quarter, Genco had approximately $1.5 billion worth of debt.

At time of publishing, the report had not been confirmed. Eagle Bulk declined to comment, while Genco had not responded to requests.

Large debt loads have been a concern troubling an increasing number in the industry. Greece-based DryShips (DRYS), for instance, had $5.2 billion in debt on its balance sheet as at Sept. 30. On Oct. 4, the company announced a $200 million share offering to access additional equity capital.

By market close, Genco had tumbled 16.2% to $2.07, Eagle Bulk had shed 12.4% to $3.11 and DryShips had dipped 0.29% to $3.42.

TheStreet Ratings team rates Genco Shipping & Trading as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate Genco Shipping & Trading (GNK) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Currently the debt-to-equity ratio of 1.63 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.09, which clearly demonstrates the inability to cover short-term cash needs.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Marine industry and the overall market, Genco Shipping & Trading's return on equity significantly trails that of both the industry average and the S&P 500.
  • In its most recent trading session, GNK has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • Genco Shipping & Trading has improved earnings per share by 10% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Genco Shipping & Trading swung to a loss, reporting -$3.48 a share vs. 72 cents a share in the prior year. For the next year, the market is expecting a contraction of 0.6% in earnings (-$3.50 vs. -$3.48).
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Marine industry average. The net income increased by 8.8% when compared to the same quarter one year prior, going from -$38.42 million to -$35.03 million.

TheStreet Ratings team rates Eagle Bulk Shipping Inc as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate Eagle Bulk Shipping Inc (EGLE) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, unimpressive growth in net income, disappointing return on equity, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Eagle Bulk Shipping Inc's earnings per share declined by 25.4% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, Eagle Bulk Shipping Inc reported poor results of -$6.27 a share vs. -92 cents a share in the prior year. For the next year, the market is expecting a contraction of 21.3% in earnings (-$7.61 vs. -$6.27).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Marine industry. The net income has significantly decreased by 26.1% when compared to the same quarter one year ago, falling from -$29.84 million to -$37.63 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Marine industry and the overall market, Eagle Bulk Shipping Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for Eagle Bulk Shipping Inc is rather low; currently it is at 23.16%. It has decreased significantly from the same period last year. Along with this, the net profit margin of -96.53% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$1.86 million or 145.19% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

TheStreet Ratings team rates DRYSHIPS INC as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate DRYSHIPS INC (DRYS) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DRYS's revenue growth has slightly outpaced the industry average of 8.7%. Since the same quarter one year prior, revenues rose by 17.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, DRYS's share price has jumped by 106.89%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • The gross profit margin for DRYSHIPS INC is rather high; currently it is at 55.52%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -15.77% is in-line with the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Marine industry and the overall market, DRYSHIPS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $48.85 million or 40.58% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
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