Genco Shipping & Trading Limited — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; unaudited. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Genco owns and operates drybulk vessels transporting cargo worldwide. Management reported a fleet of 56 vessels with approximately 5.0 million deadweight tons and an average age of 9.6 years. The fleet’s employment strategy includes spot voyage charters, time charters and spot-linked charters; many charters were due to expire between November 2019 and April 2020.
Financial and operating performance
- Q3 revenue: $103.8 million, up 12.5% from $92.3 million. Fleet-average time charter equivalent (TCE) rate rose 9.3% to $11,687 per day.
- Q3 profitability: Operating loss was $7.8 million versus operating income of $12.1 million a year earlier; net loss was $14.6 million versus net income of $5.7 million. Basic and diluted loss per share was $0.35. Operating and net margins were approximately negative 7.5% and 14.1%, respectively.
- Nine-month results: Revenue was $280.8 million, up 10.0%; operating loss widened to $36.0 million from $25.5 million, and net loss widened to $56.9 million from $51.2 million. Loss per share improved slightly to $1.36 from $1.37. Fleet-average TCE declined 12.2% to $9,405 per day.
- Drivers and costs: Greater use of spot voyage charters supported revenue but raised voyage expenses to $43.0 million in Q3 (up 36.5%) and $127.8 million for nine months (up 62.7%). Charter-hire expense also rose as Genco chartered in more third-party ships. Q3 fleet utilization was 98.9%; nine-month utilization was 97.9%, down from 98.5%.
- Impairments: Vessel impairment charges were $12.2 million in Q3 and $26.1 million for nine months, compared with none in Q3 2018 and $56.6 million for nine months 2018. The 2019 charges included vessels sold or designated for sale and other vessels whose estimated cash flows did not support their carrying values.
- Cash flow: Nine-month operating cash flow was $28.8 million, down from $43.4 million. Investing cash outflow was $31.8 million, mainly scrubbers, vessel equipment and other fixed assets; financing cash outflow was $33.5 million, primarily debt repayments. Cash, cash equivalents and restricted cash declined $36.6 million to $166.2 million.
- Balance sheet and liquidity: September 30 cash and cash equivalents were $165.9 million; current assets were $241.1 million and current liabilities $119.2 million. Debt principal was $518.6 million, including $70.1 million current; total liabilities were $563.9 million and equity $998.0 million. The company said it was compliant with both credit facilities’ financial covenants and believed resources were sufficient for at least the next 12 months.
- Margins and debt cost: Nine-month operating and net margins were approximately negative 12.8% and 20.3%. Nine-month net interest expense was $21.2 million; debt carries floating LIBOR-based rates. Management estimated a 1 percentage-point LIBOR increase would add $4.0 million of interest expense for the nine-month period.
Material changes and management commentary
- Q3 market conditions improved significantly, with the Baltic Capesize Index reaching multi-year highs, supported by Chinese steel production and Brazilian iron ore shipments. Genco said its Capesize vessels traded mainly in the Pacific near scrubber-installation yards, limiting commercial flexibility versus its broader positioning strategy.
- Twenty-two vessels entered shipyards in Q3 for scrubber or ballast-water-system installations, surveys and repairs, contributing 601 off-hire days. As of the filing, scrubbers were installed on 12 of 17 Capesize vessels; the remaining five were expected to be completed in Q4 2019.
- IMO sulfur-emissions rules take effect January 1, 2020. Genco planned scrubbers for 17 Capesize vessels and expected the rest of the fleet to use compliant low-sulfur fuel. Management warned fuel costs and fuel-inventory values could increase.
- Genco had agreements to sell the Genco Challenger and Genco Champion, both completed in October 2019, and the Genco Thunder, expected to close in Q4. A November 4 agreement to sell the Genco Raptor was also disclosed. Sale prices, commissions, collateral restrictions and related impairments are detailed in the filing.
- On November 5, 2019, the company declared a regular dividend of $0.175 per share and a special dividend of $0.325 per share, totaling approximately $21.0 million, payable in December. Lenders amended dividend and repurchase restrictions; distributions remain subject to cash thresholds, other conditions, legal limits and board discretion.
- No formal earnings or rate guidance was provided. Key risks cited include drybulk demand and freight-rate weakness, trade tensions and tariffs, vessel supply, operating and fuel costs, regulatory compliance, off-hire, charterer performance, financing and covenant compliance, and scrubber cost, timing and economic returns.
Investor verification priorities
- Track charter renewals and realized TCE rates as a large portion of employment was due to expire from November 2019 through April 2020.
- Verify scrubber and ballast-water-system installation timing, total costs, off-hire impact, and realized fuel savings or other economic benefits.
- Monitor unrestricted cash, scheduled debt amortization, floating-rate exposure and covenant headroom, especially after declared dividends and vessel-sale proceeds subject to lender restrictions.
- Check completion and net proceeds of announced vessel sales, and whether restricted proceeds are used for debt prepayment or replacement vessels.
- Assess recurring operating performance separately from vessel and lease impairments, spot-charter voyage costs, and other unusual items.
- Review the filing’s full risk factors and subsequent events, including the amended dividend covenants and the tax treatment of the declared dividends.