Eagle Bulk (NASDAQ: EGLE), an owner-operator in the dry bulk ocean shipping sector, was weighed down by the same market pressures as its competitors, and profits declined in the first quarter. But on a positive note, it averted a loss and was able to achieve higher rates for its ships than the broader average.
Eagle Bulk reported net income of $29,483 in the first quarter of 2019, down from $52,745 in the same period last year. Given its high share count (72.1 million diluted shares outstanding), its earnings were $0.00/share, or breakeven, much better than the $0.13/share loss expected by analysts.
The Connecticut-headquartered ship owner operates a fleet of 46 dry bulk vessels with an aggregate carrying capacity of 2.7 million deadweight tons (DWT). It specializes in two mid-sized bulker categories – Supramaxes (45,000-60,000 DWT) and Ultramaxes (60,000-65,000 DWT).
Its fleet achieved an average adjusted rate (including the effect of derivatives) of $9,607 per day, down 13 percent from the $11,052 per day the ships generated in the first quarter of 2018. The reported rate represents the ‘time charter equivalent’ or TCE rate, which translates spot business sold in dollars per ton of cargo into a fleetwide average measured in dollars per day under the same terms as time charters.
Despite the rate decline, Eagle Bulk chief executive officer Gary Vogel highlighted another key performance indicator – the relationship between the day rates achieved by his company and the relevant index.
“Notwithstanding weakness in freight markets during the first quarter, we were able to achieve our highest TCE outperformance to date,” said Vogel. “Our first-quarter TCE outperformance, relative to the adjusted benchmark Baltic Supramax Index, equated to almost $2,400 per vessel per day, representing a beat of over 30 percent.”
Eagle Bulk was originally a tonnage provider – chartering out ships to vessel operators, often under index-linked charters – but its current management team opted for an owner-operator approach.
The company was brought public in 2005 by founder Sophocles Zoullas, and filed for Chapter 11 bankruptcy protection in 2014. It emerged from Chapter 11 later that year, and the board parted ways with Zoullas in 2015. Vogel was appointed the new chief executive officer that same year; he instituted his ‘active fleet management’ style later in 2015.
Vogel has long maintained that Eagle Bulk can outperform the relevant index rate by using this strategy, which involves a blend of employing ships on both time and voyage charters, simultaneously chartering ships, using forward freight derivatives, and pursuing various techniques that create added optionality.
As Vogel put it on a previous conference call with analysts, “Our active management model allows us to ‘punch above our weight’.”
Other public dry bulk companies have followed Eagle Bulk’s lead and pursued their own active management strategies, which offer a more individualistic and less commoditized story to stock investors, albeit with potentially higher general and administrative expenses attached.
During the second half of 2017, Genco Shipping & Trading (NYSE: GNK) embarked on a new strategy to “transform Genco’s commercial platform to an active model, offering a full-scale logistics solution to cargo owners.”
Also in 2017, Star Bulk (NASDAQ: SBLK) created a new subsidiary called Star Logistics to expand its “vessel-operating capabilities” and provide “more direct contact with end users.”
Vogel is adamant that active fleet management trumps passive chartering. When announcing the results for the first quarter of 2019, he asserted, “With nine consecutive quarters of outperformance, we continue to demonstrate our ability to create value through the execution of our differentiated business model.”