DryShips Inc. (DRYS): Is There Hope for this Struggling Shipper?

Page 1 of 2

Back in 2008, DryShips Inc. (NASDAQ:DRYS) used to be the crown jewel of the shipping industry. With a fleet size second to none, and a market capitalization greater than $3 billion, DryShips dominated the market and held a special place in investors’ hearts.

Yet over the past five years, the gloomy demand environment within the dry bulk sector nearly sunk the company. As the Baltic Dry Index kept bumping along the bottom, the stock remained trapped in a steep downtrend. DryShips lost its crown, unable to stanch its cash bleeding or enhance shareholders’ value.

DryShips Inc. (NASDAQ:DRYS)Against this backdrop, the shipper found support in the comparably healthy offshore drilling business through its majority ownership stake in Ocean Rig UDW Inc (NASDAQ:ORIG). But just a few days ago, DryShips announced the public offering of 7.5 million Ocean Rig common shares, reducing its stake to 59.4%. Does this latest business decision bode well for the struggling giant’s future prospects?

Poor performance set to continue

Shippers evaluate their vessels’ average daily revenue performance with a metric called time charter equivalent, or TCE. In the shipping industry, TCE is a commonly used tool for tracking period-to-period changes in a company’s net-of-expenses operating performance.

With that in mind, I decided to take a look at how Dryships compares to Navios Maritime Partners L.P. (NYSE:NMM) regarding the average change in time charter equivalents for the dry bulk carrier segment:

Time Charter Equivalent, 2008-2012*

2008 2009 2010 2011 2012 Average annualized percentage change
DryShips $58,155 $30,425 $32,184 $27,229 - -22.35%
Navios Maritime Partners $24,783 $26,071 $29,358 $29,909 $28,907 4.
81
%

Source: Companies’ financial reports.

*At the time of writing, Dryships had not reported its fourth-quarter and full-year 2012 earnings. For the first nine months of 2012, the company’s TCE posted a more than 35% decline compared to the same period in 2011, and stood at approximately $17,719.

Over the past five years, DryShips has failed to deliver satisfying operating results. The tight demand environment in the dry bulk sector negatively impacted the number of revenue-generating days for its fleet. In addition, average charter revenues remained ominously below the cash break-even point. Consequently, the firm’s net income slumped. The following chart is worth a thousand words:

DRYS Net Income TTM data by YCharts

DryShips’ contract coverage stands at roughly 33% of calendar days for 2013. This means that with most of its contracts about to expire, DryShips will not be able to generate fruitful cash flows.

Despite positive signs for the future of the dry bulk sector, current market conditions do not present lucrative opportunities for ship owners. 2012 was the slowest contracting year in over a decade, with less than 300 new contracts signed. Most importantly, the prevailing oversupply of vessels prevents time charter rates from flying high.

On the other hand, Navios Maritime Partners achieved a comparably robust performance largely by relying on a conservative business model. Navios Partners’ strategy of fixing its vessels under medium to long-term charters when the market is healthy gave the company greater resilience against short-term volatility. Thus, amid a tough market environment, the firm enjoyed a stable base of revenue and was able to augment its cash-generating capacity. In turn, it rewarded its shareholders by increasing its cash distributions.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!