Greek drybulk shipper DryShips hit rocky waters on Friday, but the fundamentals of the company make for smooth sailing ahead.
Although it announced after the bell on Thursday that its second-quarter profit and revenues soared, accounting issues were a dark cloud that hung over the stock on Friday. Investors were disappointed, sending DryShips (nasdaq: DRYS - news - people ) shares falling 3.2%, or $2.31, to $71.09 at the close.
DryShips reported its second-quarter profit soared to $299.8 million, or $7.10 per share, up from $110.8 million, or $3.12 per share, during the same period a year ago. The company said its results were boosted by a $135.8 million one-time gain from the sale of the three ships, and a $12.2 million gain associated with the valuation of interest rate swaps.
Excluding those items, the company earned $151.8 million, or $3.60 per share, well below analysts’ expectations of an adjusted profit of $4.57 per share.
But Jefferies analyst Douglas J. Mavrinac said that the earnings shortfall was caused by a few one-time or non-cash items the company included in the earnings related to stock compensation expenses and the company’s acquisition of offshore drilling contractor Ocean Rig in May. (See " DryShips Dives Into Offshore Drilling.")
"Now that the transaction is closed, this shouldn’t be something that happens going forward," said Mavrinac. "The underlying core business did quite well. There were no real operational shortfalls."
The acquisition added $43.8 million in revenue during the quarter that ended June 30. DryShips revenue nearly tripled to $302.7 million, from $112.5 million during the same period last year, beating analysts’ expectations of $274 million.
Mavrinac said that DryShips' earnings before interest, taxation, depreciation and amortization did better than expected because of higher spot rates on Panamax vessels, which are ships that can fit through the Panama Canal. Fleet utilization revenues were better than expected as well.
DryShips' fleet utilization rate was 98.9% in the second quarter, up from 98.1% in the prior year. The high fleet utilization rate combined with skyrocketing tine charter rates of $ 70,701, up from $36,092 in the second quarter of 2007, and the increased number of vessels operated to 38.5 in the quarter, up from 32.7 in the prior year, led to soaring revenues.
While DryShips still has significant exposure to the spot market, which helps it take advantage of skyrocketing spot rates, the company has been transitioning to more long-term charters since April. The company has locked in 68.5% of its fleet under time charters for the remainder of 2008, 55% for 2009, 49.7% for 2010 and 46.7% for 2011, providing it with sizable cash flows and stability of its earnings for the longer term.
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