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Seaspan Corporation's Results Continued Their Slow Improvement

Compared to last year, Seaspan Corporation's (NYSE: SSW) third-quarter results were down sharply because it still hasn't fully recovered from the bankruptcy of a key customer nor the challenging conditions in the shipping sector. That said, results did improve from the second quarter, which had improved slightly from the first, so the company is heading in the right direction.

Seaspan Corporation results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$211.0 million

$224.9 million

(6.2%)

Normalized net earnings

$38.1 million

$43.6 million

(12.4%)

Normalized EPS

$0.18

$0.29

(37.9%)

Data source: Seaspan Corporation. EPS = earnings per share.

Image source: Getty Images.

What happened with Seaspan Corporation this quarter?

Seaspan went up against a tough comparable quarter:

  • While revenue dipped versus the year-ago quarter, it hit the midpoint of the company's $209 million to $213 million guidance range and was 3.1% better than last quarter. Driving the sequential improvement was the delivery of three newbuild ships during the quarter, each of which commenced 17-year fixed-rate charters with the same customer. Partially offsetting those new additions was the sale of two smaller vessels, which closed during the quarter. 
  • Earnings, like revenue, also declined versus the year-ago quarter but were higher than the second quarter when normalized net earnings were $35.5 million, or $0.17 per share. One of the drivers was Seaspan's ability to keep a lid on costs, evidenced by a 10.7% drop in ship operating expenses versus the third quarter of last year.
  • Normalized earnings were down more sharply on a per-share basis because new shares were issued over the past year to help shore up the balance sheet. During the quarter, the company completed its previously approved $75 million stock sale plan. Furthermore, it sold $6 million in stock in a private placement to its chairman during the quarter.
  • In addition to that stock sale, the company completed an $80 million debt offering after the quarter closed and signed agreements to sell four vessels for $37 million, two of which closed during the quarter.
  • While most of Seaspan's metrics improved versus the second quarter, there were two notable exceptions. Vessel utilization dropped from 98.2% last quarter to 96.9%, though that was partially due to the vessels it's selling, which, if excluded, would have boosted that number up to 98%. Meanwhile, cash available for distribution to common shareholders also fell, from $95 million last quarter and $90 million in the year-ago period to just $65 million.

What management had to say 

Board chairman David Sokol commented on the company's third-quarter results by saying:

During the third quarter, we grew our operating fleet under long-term time charters and continued to achieve strong operating performance. We are pleased to have taken delivery of three 11000 TEU containerships which are on 17-year fixed-rate charters with MSC. We also capitalized on improving industry conditions as we entered into three-year fixed-rate time charters with CMA CGM for two 10000 TEU newbuildings delivering in 2018. Our operating performance continued at a high level during the quarter as we achieved utilization of 98% excluding vessels being sold, and continued to reduce ship operating expenses per ownership day.

Seaspan operated well during the quarter and continued making progress on its plan to bolster its fleet of stable cash flow generating vessels. One of the highlights is that the company finally found a customer for two ships that will be ready next year. As a result, they will immediately start generating cash flow, instead of costing money by sitting idly in a shipyard.

In addition to that operational progress, the company continued to improve its balance sheet flexibility by closing a string of deals that enabled it to pay down its credit facilities by $200 million in the past four months. So, according to Sokol, its "strong and flexible balance sheet" has it "well positioned to capitalize on growth opportunities that may arise during this period of improving industry fundamentals."

Looking forward 

Seaspan selected a new captain to lead the company in capturing those opportunities after announcing that Bing Chen would become CEO in January. He most recently served as CEO of BNP Paribas (China), where he led the bank's growth strategy in China. Longtime CEO and co-founder Gerry Wang will retire later this week, with current COO Peter Curtis serving as interim CEO until Chen comes aboard early next year. 

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Matthew DiLallo owns shares of Seaspan. The Motley Fool recommends Seaspan. The Motley Fool has a disclosure policy.