Wednesday, June 5, 2013

Eagle Bulk Shipping: Digging Through The Surprise First Quarter Earnings

Eagle Bulk Shipping (EGLE) announced on May 15th a surprise first quarter profit of $1.4 million or $0.08 per share. The surprise profit was due to a dramatic increase in quarterly revenues to $73.6 million from $54.8 million a year ago. In comparison, the street was expecting on average a loss of $2.03 per share.

In my previous Seeking Alpha article, I had argued that the earnings surprise was due to the company’s settlement with Korea Line Corporation, and had analyzed the cash value of the settlement. In this article I will look closely at how exactly the Korea Line settlement affected the accounting earnings for the quarter, and how its earnings would look in the absence of such settlement. I find it very important to understand the accounting impact of the Korea Line settlement, because it is a one-time, non-recurring event.

Based on my analysis, the KLC settlement affected the income statement in two ways. First, it increased revenues by $32.8 million and generated an operating gain of $3.3 million on the termination of the KLC time charter agreements.

Second, it generated an expense of $3 million, following an impairment loss of previously issued KLC shares. The expense was classified as other income/expense in the income statement.

The above items resulted to a net gain of $33.1 million, which is in line with what EGLE had reported in its earnings conference call.

In addition to the one-time items following the KLC settlement, EGLE also recognized a one-time benefit of $3,438,145, which reduced its general & administrative expenses for the quarter. This one-time item does not appear to be related to the KLC charters, and it was a reversal of bad-debt allowance that the company had taken a year ago. Nevertheless, it is a non-recurring item.

The net effect of all above items was a gain of $36.6 million. Without the non-recurring items, EGLE would have reported a net loss of $35.2 million or ($2.08) per share, below the analysts’ consensus of ($2.01) per share. The company would also have reported TCE revenues (that is revenues less voyage expenses, a non US GAAP measure that is commonly used in the shipping industry) of just $31.2 million, again below analysts’ consensus of $35.6 million. I must note that the average TCE, excluding the one-time items, was a paltry $7,746 per day, which is below its cash-break even rate of approximately $9,000.

Continue Reading the full article as published on Seeking Alpha

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