Yahoo Finance Genco Shipping & Trading Limited (NYSE:GNK) Q1 2024 Earnings Call Transcript
Genco Shipping & Trading Limited (NYSE:GNK) Q1 2024 Earnings Call Transcript May 9, 2024
Genco Shipping & Trading Limited isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited First Quarter 2024 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today’s conference call. That presentation can be obtained from Genco’s website at www.gencoshipping.com. To inform everyone, today’s conference is being recorded and is now being webcast at the Company’s website, www.gencoshipping.com. We will conduct a question-and-answer session after the opening remarks, instructions will follow at that time. A replay of the conference will be accessible anytime during the next two weeks by dialing 800-938-2487 and entering the passcode 24967. At this time, I will now turn the conference over to the Company. Please go ahead.
Peter Allen: Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management’s current expectations and observations. For a discussion of factors that could cause results to differ, please see the Company’s press release that was issued yesterday and materials relating to this call posted on the Company’s website and the Company’s filings with the Securities and Exchange Commission, including, without limitation, the Company’s annual report on Form 10-K for the year ended December 31, 2023, and the Company’s reports on Form 10-Q and Form 8-K subsequently filed with the SEC.
At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.
John C. Wobensmith: Good morning, everyone. Welcome to Genco’s first quarter 2024 conference call. In addition to reviewing our Q1 2024 and year-to-date highlights, we want to use this opportunity to provide an update on the progress we are making three years into our comprehensive value strategy as well as on the industry’s current fundamentals. We will then open up the call for questions. For additional information, please also refer to our earnings presentation posted on our website. Separately from our earnings release, we issued a press release yesterday with the news that leading proxy advisory firm ISS made recommendations consistent with those of our Board for all of the items to be voted on at our Annual Meeting of Shareholders this year.
While we are pleased with this result, the focus of our call this morning will be over the results for the first quarter of 2024 and the ongoing implementation of our comprehensive value strategy. If you wish to see more information regarding matters to be voted on at our Annual Meeting, please refer to the press release I mentioned or our website at www.gencoshipping.com. Beginning on Slide 5, during the first quarter, we further executed our value strategy, which is aimed at driving returns through the drybulk cycles and creating sustained long-term shareholder value. Building on a solid end to 2023, Q1 2024 marked another strong quarter for Genco. We drew on our leading commercial platform and significant operating leverage to generate Q1 net income of $18.8 million driven by a fleet-wide time charter equivalent rate of $19,219.
Notably, Q1 TCE increased relative to Q4 for the first time in over 15 years. In terms of shareholder returns, we increased the Q1 dividend quarter-over-quarter to $0.42 per share as our strong Q1 earnings flowed into our dividend consistent with our transparent policy. During the quarter, we also further improved our risk reward balance as we voluntarily paid down debt and improved our net leverage position to 7% as we approach our goal of net debt zero. Turning to Slide 6, we provide a snapshot of how our approach to capital allocation centered around dividends, deleveraging and growth has developed since implementing our value strategy a little over three years ago. In 2021, we laid out a clear path and related objectives to transfer Genco into a low-leverage, high-dividend yielding company with significant financial flexibility to provide shareholders with returns and opportunistically grow through the drybulk shipping cycles.
Since that time, we have paid down $279 million of debt while distributing nearly $200 million to shareholders in the form of dividends and investing $236 million in our fleet. As we implemented the strategy in 2021, we prioritized vessel acquisitions and debt pay downs to reduce our cash flow breakeven when the cyclical turn in the market began, creating a strong foundation for the execution of our value strategy. Since 2022, we have continued to voluntarily pay down debt, while increasing our focus on dividends. On Page 7, we highlight the compelling dividends we have provided to shareholders. The first quarter dividend marks our 19th consecutive quarterly dividend payment, representing the longest period of consecutive dividends in our peer group.
Over this time, we have declared $5.57 per share in dividends or approximately 25% of the current share price. Complementing shareholder returns during Q1, we continue to prioritize fleet renewal as highlighted on Page 8. Following the timely acquisition of two high-specification Capesize vessels in Q4, we divested three 2009 to 2010 built vessels that delivered to buyers in Q1 and early Q2 2024. Through these transactions, we have improved the fuel efficiency of our fleet, increased our earnings power, reduced our fleet’s average age and saved approximately $10 million in drydocking CapEx for 2024. Importantly, we also increased utilization in the current strong market. With the execution of this phase of our fleet renewal plan, we have further advanced our barbell approach to fleet composition, as shown on Page 9.
Capesize vessels provide high operating leverage and upside potential with a focus on the iron ore coal and oxide trades, while the minor bulk vessels provide more stable earnings streams, operate on diverse trade routes and are more closely linked to global GDP growth. We believe owning ships in both of these sectors support Genco’s value strategy. Moving forward, we continue to evaluate further opportunities in the sale and purchase market to further renew our fleet. Turning to Slide 10, we continue to generate strong TCE performance. In Q1, our fleet-wide TCE increased by 38% on a year-over-year basis. Looking ahead to Q2, 65% of our available days are fixed to-date at over $20,000 a day, pointing to another firm quarter as this is well above our cash flow breakeven rate of approximately $10,000 per day.
Turning to Slide 11. We believe Genco remains in a highly advantageous position moving forward. Specifically, we have an industry low net loan-to-value and cash flow breakeven rate and nearly $300 million in undrawn revolver availability. This provides significant financial flexibility and optionality for the Company going forward. We believe our low leverage, high dividend payout model executed in scale is industry leading in the drybulk shipping public markets. Given the volatility and cyclicality of drybulk shipping, we also believe it creates a favorable risk reward balance to provide sizable returns to shareholders, opportunistically grow the fleet and enhance our earnings powers through the cycles. I will now turn the call over to, Peter Allen, our Chief Financial Officer.
Peter Allen: Thank you, John. On Slides 13 through 15, we highlight our first quarter financial results. Genco recorded net income of $18.8 million or $0.44 and $0.43 basic and diluted earnings per share, respectively. Adjusted net income amounted to $21.4 million or basic and diluted earnings per share of $0.50 and $0.49, excluding other operating expenses of $1.8 million loss on sale of vessels of $1 million and unrealized fuel gains of $0.2 million. Adjusted EBITDA for Q1 totaled $41.9 million more than double the total from the same period of 2023. During the first quarter, our net revenues increased by 44% on a year-over-year basis, while our recurring cost structure remained approximately flat over the period, illustrating the high-degree of operating leverage inherent in the business.
This operating leverage is best displayed by our Capesize vessels, which earned a TCE of $25,600 per day in Q1 2024, nearly $10,000 per day higher than the same period of last year. With such operating leverage, there is less of a need for financial leverage to achieve strong returns. On Slide 16, we highlight a trajectory of our debt outstanding and our continued voluntary debt repayments. In the year-to-date, we have utilized the built-in flexibility of our $500 million revolving credit facility to voluntarily pay down $85 million of debt so far this year, primarily utilizing proceeds from vessel sales. On a go-forward basis, we estimate these debt pay downs will reduce interest expense by approximately $5 million on an annualized basis or approximately $350 per vessel per day on our cash flow breakeven rate.
We have now paid down nearly 75% of our debt or $334 million resulting in a pro forma net loan-to-value ratio of 7%. Given our 100% revolving credit facility, we plan to continue to actively manage our debt balance to save on interest expense while opportunistically drawing down for vessel purchases given our nearly $300 million of undrawn capacity at the end of Q1. Moving to Slide 17. We highlight our transparent dividend policy, which targets a distribution based on 100% of excess quarterly cash flow, excluding maintenance and withholding for future investment. The nature of our variable dividend policy and our fleet’s operating leverage enables shareholders to directly benefit from freight rate increases as we’ve seen over the last couple of quarters.
Our Q1 2024 dividend represents an annualized yield of 7.4% on the current share price, well above two year U.S. treasury rate of approximately 4.8%. Looking ahead to Q2 2024, we anticipate our cash flow breakeven rate excluding incremental Annual Meeting related expenses to be $10,207 per vessel per day, well below our Q2 TCE estimates to-date of $20,126 for 65% fixed, pointing to another strong quarter. These incremental Annual Meeting related expenses will also be excluded from the Q2 dividend calculation. I will now turn the call over to, Michael Orr, our Drybulk Market Analyst, to discuss the industry’s current fundamentals.
Michael Orr: Thank you, Peter. As depicted on Slide 19, the drybulk market remained at elevated levels during the first quarter. These strong rates occurred during the historically softest quarter of the year for freight rates. However, Q1 Capesize rates reached a 15-year high for the period driven by continued tightness of vessel supply in the Atlantic Basin and relatively dry weather in Brazil, enabling increased iron ore exports. In Q2 to-date, Capesize and Supramax rates remain at firm levels, experiencing a strong push in recent days to approximately $28,000 and $16,000 per day respectively. With a well-balanced drybulk market as we have seen in recent years, events that impact the supply of ships can have an effect on the freight market.
As highlighted on Slides 20 and 21, low water levels in the Panama Canal impacted the number of ships that could transit, resulting in heavy delays in rerouting of vessels. Initially, vessels were diverted through the Suez Canal. However, attacks on commercial vessels in the region led many shipping companies to no longer transit the Southern Red Sea and Gulf of Aden area, further disrupting the efficiency of the global drybulk fleet. Regarding the Chinese steel complex on Slides 22 and 23, China’s iron ore imports rose by 5% in Q1 2024 year-over-year, while iron ore port inventories have been building since October. In terms of steel production, the World Steel Association forecast China’s output to remain at around 2023 levels, while the rest of the world is expected to see growth of 4%, led by 8% growth from India, pointing to an increase in demand from developed countries and support from secondary trade routes.
In terms of the grain trade, we are currently in the midst of the South American grain season. The USDA is forecasting substantial increase in exports from both Brazil and Argentina. An additional 25 million tons of corn and soybeans are expected to be shipped this marketing year, helping support minor bulk rates. Regarding the supply side outlined on Slides 25 to 27, net fleet growth in 2023 was 3%. Historically, low order book as a percentage of the fleet as well as near-term and longer-term environmental regulations are expected to keep net fleet growth low in the coming years. While we expect volatility in the freight market, the foundation of a low supply growth picture provides a solid basis for our constructive view of the drybulk market going forward.
This concludes our presentation, and we would now be happy to take your questions.
Operator: Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] And, we’ll take our first question from Omar Nokta with Jefferies. Please go ahead.
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