Q1 2025 Genco Shipping & Trading Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Ltd. 1st, 24th, 2025, Earnings, Conference, School, and Presentation.
Before we begin, please note that there will be a slide presentation accompanying today's conference call.
That presentation can be obtained from Genco's website at www.gencoshipping.com
To inform everyone today's conference is being recorded and is now being webcast of the company's website www.gencoshipping.com We will conduct a question and answer session after the opening remarks. Instructions will follow at that time
Speaker Change: A webcast replay will also be available via the link provided in today's press release as well as on the company's website. At this time, I will now turn the conference over to the company. Please go ahead.
Thank you.
Speaker Change: Good morning. Before we begin our presentation, I note that in this conference call we were making certain forward-looking statements pursuant to the safe harbor provisions of the private security litigation reform act of 1995. Such forward-looking statements use words such as anticipate budget estimates.
Speaker Change: These four-looking statements are based on management's current expectations and observations.
Speaker Change: for a discussion of factors that could cause results to differ. Please see the company's press release. That was issued yesterday. The materials are relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including with that limitation.
Speaker Change: The company's annual report on Form 10K for the year ended December 31, 2024, and the company's report on Form 10Q, and Form 8K, subsequently filed the BSEC.
John Wobensmith: At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping and Trading Limited.
John Wobensmith: Good morning, everyone. Welcome to Genco's first quarter, 2025 conference call. I will begin today's call by reviewing our Q1 2025 and year-to-date highlights.
John Wobensmith: Additionally, we will provide an update on our value strategy, highlight our new share repurchase program, and discuss our financial results for the quarter, as well as the industry's current fundamentals before opening the call-up for questions.
John Wobensmith: For additional information, please also refer to our earnings presentation posted on our website.
John Wobensmith: Beginning on slide 5, despite the seasonally softer first quarter and consistent with our success providing dividends to shareholders through market cycles, we continue to prioritize our quarterly dividend policy.
John Wobensmith: Specifically, we declared a 15 cent per share dividend extending our track record of providing 23 quarters of consecutive dividends and marking the longest stretch of uninterrupted dividends in our dribble career group.
John Wobensmith: Over this period, Genco has declared $6.76 per share of dividends, representing 50% of our current share price.
John Wobensmith: Notably, for the first quarter of 2025, our dividend formula, including the voluntary reserve of 19.5 billion dollars, would not have produced a dividend. However, management and the board chose to reduce the reserve.
John Wobensmith: From $19.5 million to $1.1 million for the quarter resulting in the $0.15 per share dividend.
John Wobensmith: This highlights our commitment to our dividend and returns to shareholders as well as our favorable view of the long-term fundamentals of the dry milk industry and the improving freight environment in Q2 so far.
John Wobensmith: We have caged sizable dividends to shareholders in different freight environments over the past six years as highlighted on page six and we are pleased to build upon this strong track record by putting in place a $50 million share repurchase program.
John Wobensmith: We believe that significant equity market volatility has resulted in a disconnect between our share valuation and the underlying fundamentals of our business.
John Wobensmith: We have long held the view that when this extreme dynamic materializes, it is the appropriate time to put in place a share repurchase program.
John Wobensmith: This is a capital allocation tool that we have extensively evaluated throughout the cycle and view this as a compelling and opportunistic way to capture shareholder value if we continue to experience downward volatility.
John Wobensmith: Importantly, the Sherry Purchase Program is incremental to our quarterly dividend policy, which we intend to maintain as our primary method of returning cash to shareholders.
John Wobensmith: Turning to Slide 7 with an industry low net loan devalued ratio of 6%, a low cash low break even rate in over $320 million and undrawn revolver availability.
John Wobensmith: We believe Genco remains in a highly advantageous position to successfully operate in the current volatile geopolitical environment and continue to differentiate ourselves from our dry bulk peer group.
John Wobensmith: Going forward, we remain focused on executing on the three pillars of our value strategy, dividends, de-leveraging, and capitalizing on a creative growth and fleet or no opportunities.
John Wobensmith: We also intend to act opportunistically in carrying out our new share repurchase program to create long-term shareholder value.
John Wobensmith: From a dribble market perspective, in January and February , the freight rate environment experienced typical seasonal factors as weather conditions in key export regions reduce seaborn volumes, temporarily misaligning the supply and demand balance, resulting in pressure
John Wobensmith: However, in March, rate rates rallied at some of these temporary factors dissipated. We saw K-Prates rise from under $6,000 a day to nearly $24,000 a day in a matter of weeks, highlighting the significant operating leverage inherent in the business.
John Wobensmith: As we look forward, with added long, tall tons hitting the market towards the end of 2025 and into 2026.
John Wobensmith: Together with a historically low capesize order book, the potential catalysts are clear. We currently are in an operating environment characterized by compelling dry box supply and demand fundamentals, but also an ever changing geopolitical landscape. [inaudible]
John Wobensmith: During times like these, we focus on what we can control, which is our capital structure and our asset base, maintaining low financial leverage and in turn a low cash flow break even.
John Wobensmith: Enables Genco to not only continue to pay dividends in periods of downward volatility but also to take advantage of a creed of growth opportunities with a wide variety of capital allocation tools at our disposal.
Speaker Change: We believe this capital allocation strategy works well and all operating environments will enable Genco to be nimble as markets develop and offer a compelling risk reward balance for our investors. I will now turn the call over to Peter Allen or Chief Financial Officer.
Peter Allen: Thank you, John . On slides 9-11, we highlight our first quarter financial results. Genco recorded a net loss of $11.9 million or 28 cents based on diluted net loss per share. Give a die for Q1 total of $7.9 million dollars.
Peter Allen: On Slide 12, we show the trajectory of our debt outstanding and our continued voluntary debt repayments. Since the inception of our value strategy, we've paid down 80% of our debt or nearly 360 million dollars, which has resulted in a net loan to value of 6%.
Peter Allen: Specifically, over the last year and a half, we have voluntarily paid down $110 million of debt under our revolving credit facility, the benefits of which we're seeing in interest expense year-to-year, which was $1.5 million lower, equating to $6 million annualized or approximately $400 per vessel per day on our cash flow breakeven rate. [inaudible]
Peter Allen: voluntarily paying down debt highlights the importance and significant flexibility that our current 100% revolver structure offers us in that we can pay down debt to actively manage interest expense without losing borrowing capacity to capture a creative growth opportunities as markets develop.
Peter Allen: We have a cash and debt balance of $31 million and $90 million respectively, resulting in a net debt position of $59 million and an industry low at length of value of 6% on our 42 vessel fleet.
Peter Allen: Additionally, we have $324 million of undrawn revolver availability which we can utilize to further invest in our fleet to capture a creative growth opportunities among other uses.
Peter Allen: Moving to slide 14, we highlight our quarterly dividend policy, which targets a distribution based on 100% of operating cash flow, less of voluntary reserve.
Peter Allen: For the first quarter, our Board of Directors declared a 15 cent per share dividend based on operating cash over approximately $8 million and a voluntary quarterly reserve of $1 million.
Peter Allen: Looking ahead to Q2 2025, we currently have 68% of owned available days fixed at a rate of approximately $14,000 per day as compared to our anticipated cash over a given rate, excluding dry docking related topics of $8,750 per day.
Peter Allen: which highlight the rate rate improvement seen in March that carried over into April . This improvement has been led by our capesize vessels which in Q2 to date are currently fixed at approximately $18,700 per day, an increase of over 40% from $13,000 per day in Q1 further highlighting the significant operating leverage of the sector.
Peter Allen: We note that Genco, like much of the industry, has a large scale dry docking program in 2025. We completed dry docking on four vessels during the first quarter, with another three vessels that entered the yard in Q1.
Peter Allen: Lastly, regarding capital location over the course of this tribal market cycle, we have prioritized strengthening our balance sheet through voluntary debt repayments, modernizing our fleet and returning cash to shareholders through quarterly dividends, which have proven to be prudent strategies.
Peter Allen: Going forward, we remain focused on these three pillars while adding an additional capital allocation tool in the new Sherry Pursus Program, as we continuously evaluate various uses of capital to drive Sherholder value. I will now turn the call over to Michael Orr, our Gribal Market Analyst, to discuss industry fundamentals.
Michael Orr: Thank you, Peter. Beginning on slide 16, the dry bulb freight rate environment was impacted by seasonal factors, including weather-related disruptions in Brazil and Australia, producing cargo availability. The front-loaded nature of the new building deliveries as well as the timing of the Chinese New Year.
Michael Orr: After averaging over $20,000 per day for 14 consecutive months from October 2023 to November 2024, the Baltic Keepsize Index averaged approximately $10,000 per day from December to February , bottoming at $1,900 on February 12.
Michael Orr: However, within weeks, the DCI rose over 300% to nearly $24,000 per day by mid-March, highlighting the significant upside potential of the sector. Currently, the DCI and BSI are at levels of $15,000 and $10,000 per day, respectively.
Speaker Change: Turning to page 17, we point to China's steel complex, specifically the country's iron ore imports held by 8% year-over-year during the first quarter, impacted by the reduction of seaborne supplies. China's iron ore cord inventories have been drawn down by 7% from earlier year-high.
Speaker Change: and are now 3% lower on a year-over-year basis to supplement the downward-moved imports.
Speaker Change: Importantly, China's steel production has increased year-over-year by 1%, with March being the strongest month of output since May 2024.
Speaker Change: China continues to export over 10% of the steel producers, mostly going to other Asian nations as well as the Middle East, with its proportion of exports to steel output growing over recent years. China's excess steel has remained a pointed contention prompting protectionist measures from various countries.
Speaker Change: We believe that if China's exports come under pressure, the country will have to boost demand domestically to achieve growth targets, which we could result in augmented demand for raw materials.
Speaker Change: During the pages 18 and 19, we highlight the long haul iron or inbox site trade growth expected from Brazil and West Africa in the coming years.
Speaker Change: While growth this year is expected to be marginal, there are significant growth lines expected in 2026 and 2027 that can absorb potentially over 200 Cape size vessels, which is more than the current Cape size new building order book.
Speaker Change: Supply constraints and capesize new building activity combined with added long haul trading distances are two key catalysts for the sector
Speaker Change: In terms of the grain trade as detailed on page 20, we are currently in peak South American grain season. China has been aggressive in purchasing Brazilian soybeans this season as uncertainty lingers over U.S. China trade.
Speaker Change: Currently, current tariffs on US agricultural products make them unconpetitive relative to other exporters. However, volumes to China are traditionally lower in Q2 and Q3 than what would ordinarily be seen during peak North American grain season, which ramps up in Q4.
Speaker Change: Regarding the supply side outline on slide 21, Net Sleep Growth in the year-to-date is 3.3% on an annualized basis. Split between 2% Net Sleep Growth for Cape Sizes and 3% to 5% Net Sleep Growth for Panamaxes down to handy sizes.
Speaker Change: The capeside segment continues to have the smallest order book among the drive booksectors at 8% of the fleet. Specifically, only 11 capes delivered in Q1, the least amount of Q1 caped deliveries in over 15 years. Furthermore, there are currently only 28 more caped deliveries expected this year. The capeside segment continues to have the smallest order book among the drive booksectors at 8% of the fleet.
Speaker Change: Additionally, as scrapping has remained low in recent years, the age of the global fleet has risen to nearly 13 years old, the highest average age of the global drive-up fleet since 2010.
Speaker Change: This has increased the pool of potential scrapping candidates as over 10% of the on-the-water fleet is 20 years or older, which is identical to the global dribble-order book as a percentage of the fleet. This implies net replacement of punnage over time as opposed to any material net fleet growth.
Speaker Change: While we expect volatility in the freight market, the foundation of a low supply group picture provides a solid basis for our constructive view of the drive bulk market going forward.
Speaker Change: This concludes our presentation and we would now be happy to take your questions.
Speaker Change: Thank you, ladies and gentlemen, we'll now conduct a question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.
Speaker Change: And your first question comes from the line of Omar Nokta with Jeff Lee's
Please go ahead.
and John Wobensmith.
Thank you.
You guys good morning.
Speaker Change: Just a couple of questions on my end and maybe John , you opened with this or touched on this and some good detail but just wanted to ask if you could maybe just explain a bit more on the shared buyback. Obviously it's a big number, I'd say relative to the market cap and the float. Maybe just how do you come about the agreement on the buyback and how do you see yourselves putting it to work? Yeah, it's a big deal.
Speaker Change: and I guess just to remind you how does that work with the different policy currently in place.
Speaker Change: Okay, so let me, let me take the dividend policy first. I can't stress enough. This is a, this is a bolt-on. It is incremental to the, to the dividend policy. It will not affect.
Speaker Change: Not only our ability but our decision to pay dividends going forward, the formula is the same.
Speaker Change: And obviously, if there is downward volatility, we will continue to pay dividends as we have this quarter as well as we had a couple quarters in 2023. So
Speaker Change: I don't look at at it as we're going to consistently be in the market buying shares. It's really to protect and take advantage if we see, you know, the extreme volatility downwards that we saw a few weeks ago.
Speaker Change: and you'll also probably notice there's no expiration date on the on the share by-back program. So...
Speaker Change: It's something that we plan to have in place for the foreseeable future in terms of sizing it.
Speaker Change: We looked at what others have done not only in shipping but also across the several other industries and as a percentage of market cap we think it's the right number.
Speaker Change: That makes a lot of sense. And I guess maybe just in that context in terms of I guess there's two parts to kind of the share valuation. Very should nice.
Speaker Change: You know the buyback perhaps is in response to these aggressive moves in the market and then there's also just say the underlying discount valuation at the stock currently has relative to asset values. Maybe just as you think about asset values. [inaudible]
Speaker Change: Specifically, how are you thinking about those values? What are you seeing from your vantage point in terms of where pricing is? They seem to have held up a bit better than we would have anticipated just given all the macro. But just wanted to get your perspective on what's behind. [inaudible]
It's sort of a market-remaining buoyant as it has been.
Speaker Change: Yeah, it's not only boyant, but it's actually moved up to some degree over the last couple months.
Speaker Change: Yes, but the newer vessels clearly are holding value, they've increased a little bit, and I think all you have to do is look to the price of new buildings right now. There's certainly a correlation and a link to that and those prices continue.
Speaker Change: to remain firm. And as we all know, you know, when you're ordering today, you're really talking about late 2028 or early 2029 delivery at this point. So that...
Speaker Change: I think that also keeps, you know, has been keeping these prices from.
Speaker Change: Got it. Thanks John . I'll turn it over. Thanks so much.
Liam Burke: Your next question comes from Liam Burke with B. Riley Securities. Please go ahead. Thank you. Good morning, John . Good morning, Peter. Good morning.
Thank you. Bye-bye.
Speaker Change: The question I had is, when we're looking at the minor books, I mean, you've parsed up the box satin iron or trade and the grain trade, how are you viewing coal and their influence on the mound, keep serves vessels?
Um
Speaker Change: So, you know, coal just like every other commodity ebbs and flows. We certainly saw softness in the beginning of the first quarter, but I would say that, you know, coal has come back into the market. I wouldn't call it booming, but it's certainly there, slow and steady. I think if you look at
Speaker Change: Q1, we're in between brain seasons, South American versus US golf, but I also think there's some questions around how much soy and corn will actually come out of the US golf as we get into the season later this year.
Just because China has been buying.
Speaker Change: A lot from Brazil. We obviously know the trade battle that is going on between the U.S. and China. And I think you can go back to 2018 time periods and see what happened as a result of the back and forth.
Speaker Change: There was also a lot of uncertainty around USTR and who was going to be paying poor fees and who wasn't and that definitely stopped the market for a few weeks as people were trying to figure out how to build
Speaker Change: Languages in the Charter Party so that it did not become the responsibility of the of the ship owners. So things, things slow down significantly. In fact,
Speaker Change: I would tell you, there was a three week stretch there that there was really no new business being done, the only business that was being done was contractual in nature and had already been booked.
on the minor balks in the first quarter.
Speaker Change: Great, and no matter how you look at it, your leverage is exceedingly low, is net debt zero an objective anymore or just moderate leverage, which will allow you to pursue your capital allocation program.
Speaker Change: Yeah, I look net that zero is still a goal. We could easily get there by by the end of this year all things, you know, remaining equal right now. You know, having said that, it doesn't mean that if an acquisition comes up and it's accreted to it's earnings, cashless and dividends.
Speaker Change: that we won't lever up a little bit. But you're not going to see us in the 50-60% leverage. Maybe it goes up as high as...
Speaker Change: 30%, but then we bring it back down, just like we had in the past. And I think again, the company is just so well set up to do those types of things. And that's why we think we've got the best risk reward position right now.
Great. Thank you, John .
Okay, wait. Thank you.
Speaker Change: Your next question comes from Paul Fratt with Alliance Global Partners. Please go ahead.
Hey, good morning.
Thank you.
Speaker Change: Um, can you expand on the, you know, the US trade decisions, you know, you put a little bit of a comment in your 10-Q .
Speaker Change: about the, you know, the exemption for less than 80,000 deadweight tons, I think, but can you, can you expand on whether you think you're going to be impacted if it, if it all by the port fees?
Speaker Change: Yeah, so the short answer is we do not see any impact.
Yeah, we will be...
Speaker Change: We will be exempt for U.S. trading. You pointed out the less than 80,000 that we timed so that's, you know, that covers our minor bulk fleet going in and out of the U.S.
Speaker Change: and then Arcade, there's also an exception that you're not charge port fees if you come to the United States in Ballast.
Speaker Change: And that's the only way that our capes have traded in the U.S. We don't do a lot of U.S. trade just to be clear with our capes. But the capes come emptied, they usually pick up coal and either baltimore for...
Speaker Change: Norfolk Hampton Roads area, and then, and then, you know, leave full. So that that type of trade would be exempt as well. So.
Just going back, we don't we don't see impact at this point.
Speaker Change: That's really helpful. And then, you know, the two parts of the fleet, you know, profile enhancement, you know, buying newer tonnage, but also selling some of the older tonnage.
Speaker Change: Could you update us on sort of what the tone of the market is for selling some of the smaller older tonnets that you have?
Speaker Change: Yeah, I think it's fairly good right now. If you'd ask me a month ago, I would have a different different answer, but you know with USTR providing...
Speaker Change: Not just clarity, but some, you know, what I would say is some sensible thoughts on it. You know, people are buying and selling ships again. So I would say it's a pretty liquid market on the older ships.
Speaker Change: and I still believe that the market overall, there's an optimistic view which is why you're seeing these older ships being bought.
Great. Thanks for your time, John .
Thanks, Paul.
Speaker Change: As there are no further questions at this time, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.