Yesterday after market closed, DryShips Inc. (DRYS) declared financial results for the third quarter 2010 that significantly outperformed the Zacks Consensus Estimates. Management’s strategy to put its vessels under long-term charters during the quarter to avoid volatility in the spot-market paid off nicely. As a result, in the after-market trade on NASDAQ, stock price of DryShips was up 39 cents (7.51%) to $5.58.
Quarterly net income was $49.3 million or 18 cents per share compared to a net income of $31.4 million or 11 cents per share in the prior-year quarter. However, in the reported quarter, DryShips incurred $49.7 million of one-time special charges. Excluding these items, adjusted EPS was 38 cents per share, miles ahead of the Zacks Consensus Estimate of 26 cents.
Quarterly total revenue was more than $225.5 million, up 1.4% year over year and also exceeded the Zacks Consensus Estimate of $220 million. Quarterly Voyage revenue was $115.1 million, down 4.5% year over year. Revenue from Drilling contracts was over $110.4 million, up 8.6% year over year. Quarterly Time charter equivalent revenue (Voyage revenue less Voyage expense) was $108.1 million, down 5.9% year over year.
Quarterly total operating expenses were $117.3 million, down 11.5% year over year. Voyage expense was $7.1 million, up 22.8% year over year. Vessel expense was $16.7 million, down 14.9% year over year. Drilling Rigs expense was $26.9 million, down 23% year over year. Quarterly SG&A expense was $18.1 million, down 21.2% year over year.
In the reported quarter, adjusted EBITDA (which excludes gain/loss from interest rate swaps) was $168.1 million, a considerable improvement over the prior-year quarter’s adjusted EBITDA of $139.9 million.
At the end of the quarter, DryShips had $367.1 million of cash & cash equivalents and $2,629.4 million of outstanding debt on its balance sheet compared to $693.2 million and $2,684.7 million, respectively, at the end of fiscal 2009. At the end of the same quarter, debt-to-capitalization ratio was 0.26 compared to 0.26 at the end of fiscal 2009.
Operating Metrics
In the third quarter of 2010, average number of vessels of DryShips was 37.3 compared to 38.5 in the prior-year quarter. Quarterly total voyage days for vessels were 3,389 compared to 3,492 in the year-ago quarter. Total calendar days for vessels were 3,428 compared to 3,541 in the year-ago quarter. Quarterly fleet utilization was 98.9% compared to 98.6% in the year-ago quarter. Time charter equivalent or TCE was $31.886 million compared to $32.887 million in the prior-year quarter. Vessel operating expense (daily) was $4,864 compared to $5,536 in the prior-year quarter.
Recommendation
DryShips declared that over 80% of its shipdays in 2011 are fixed at around $37,000 per day, which will help the company to avoid spot-market volatility. Furthermore, the company also announced that the rates for ultra deepwater rigs have bottomed out in the third quarter of 2010 at around low-$400,000 per day range. After that the scenario will become more favorable since the rates are trending upward and demand for drilling rig may surpass supply in 2011.
We maintain our long-term Neutral recommendation for DryShips. Currently it is a short-term Zacks #3 Rank (Hold) stock. DryShips competes mainly with Diana Shipping Inc. (DSX) and Excel Maritime Carriers Ltd. (EXM).
DRYSHIPS INC (DRYS): Free Stock Analysis Report
DIANA SHIPPING (DSX): Free Stock Analysis Report
EXCEL MARITIME (EXM): Free Stock Analysis Report
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