Q2 2025 Genco Shipping & Trading Ltd Earnings Call
Speaker #3: Good morning. Ladies and gentlemen, and welcome to the Genco Shipping & Trading Ltd second quarter 2025 earnings conference call. And presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call.
Speaker #3: 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 at the company's website, www.gencoshipping.com.
Speaker #3: We will conduct a question and answer session after the opening remarks. Instructions will follow at that time. A webcast replay will also be available via link provided in today's conference.
Speaker #3: 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.
Speaker #4: Good morning. Before we begin our presentation, I note in this conference call, we will be making certain forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Speaker #4: Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe, in other words, in terms of similar meaning in connection with the discussion of potential future events, circumstances, or future operating or financial performance.
Speaker #4: These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's website, and the company's filings with the Securities and Exchange Commission, including, without limitation, the company's annual report on Form 10-K for the year ended December 31, 2024, and the company's reports on Form 10-Q and Form 8-K subsequently filed with the SEC.
Speaker #4: At this time, I like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Ltd.
Speaker #5: Good morning, everyone. I will begin today's call by reviewing our Q2 2025 and year-to-date highlights. Additionally, we will provide an update on our value strategy, discuss our financial results for the quarter, as well as the industry's current fundamentals before opening the call up for questions.
Speaker #5: For additional information, please also refer to our earnings presentation posted on our website. Starting on slide 5, during the second quarter, we continue to prioritize returning cash to shareholders through market cycles, while taking additional steps to further expand our earnings power.
Speaker #5: For the second quarter, we declared a dividend of $0.15 per share. Despite an intensive dry-docking quarter, we are proud to extend our track record of 24 consecutive quarters of dividends, marking the longest period of uninterrupted dividends during our dry boat period.
Speaker #5: Including the Q2 dividend, Genco has declared $6.91 and a half cents in dividends per share, representing 41% of our current share price. Notably, for the second quarter of 2025, our dividend formula, including a voluntary reserve of 19.5 million dollars, would not have produced a dividend.
Speaker #5: However, management and the board chose to maintain the voluntary reserve, but reduce it from 19.5 million to 7.9 million dollars for the quarter, resulting in the 15 cent per share dividend.
Speaker #5: This highlights our commitment to regular shareholder returns, as well as our favorable view of the long-term fundamentals of the dry boat industry. And the seasonally stronger freight rate vironment that has emerged in the second half of the year thus far.
Speaker #5: To that end, we have front-loaded the majority of our dry dockings, having completed 12 to date. In the coming weeks, we'll be completed with the majority of our 2025 dry docking schedule, and our cash flow break-even rate is expected to revert back to approximately 9,800 dollars a day by Q4 of this year.
Speaker #5: Subsequent to the end of the quarter, we took steps to further strengthen our capital structure and hance our financial flexibility. As we seek to further modernize our asset base for the benefit of shareholders.
Speaker #5: Following our success expanding Genco's borrowing capacity by 50%, with the closing of our new $600 million revolving credit facility, we acted decisively to grow our cape size fleet.
Speaker #5: Specifically, we agreed to purchase a 2,020 Imabari-built scrubber-fitted cape size vessel to be renamed the Genco Courageous. The vessel is scheduled to deliver to Genco in September, October, of this year.
Speaker #5: And we plan to utilize capital from the recently closed revolver to fund the transaction. This purchase represents the fourth highest specification fuel-efficient cape size vessel that Genco has agreed to acquire since Q4 2023.
Speaker #5: Further expanding the company's presence in a key sector with compelling supply and demand fundamentals. Moving to slide 6, capitalizing on our compelling vessel acquisitions and providing shareholders with uninterrupted dividends, our key components of our capital allocation strategy which has been well-balanced since inception of our value strategy in early 2021.
Speaker #5: Over the past four years, we have invested nearly $350 million in high-quality modern vessels. Distributed $257 million in dividends. To shareholders and paid down $349 million in debt.
Speaker #5: Collectively, these actions have transformed Genco's balance sheet, created a highly differentiated risk-reward balance, and increased the earnings power of the regularly quarterly dividends. On page 7, we highlight our fleet composition, pro forma for the latest agreed-upon acquisition.
Speaker #5: We will own a fleet 17 cape size vessels, and 26 Ultramax and Supermax vessels. We continue to balance the high beta and the upside potential of the cape size sector, along with the steadier earnings stream of the minor bulk ships.
Speaker #5: On a vessel ownership basis, our ownership splits are 40% capes and 60% Ultramax Supermax. However, when we view these splits on an asset value or a net revenue basis, we are over 50% weighted towards cape size vessels, providing us significant operating leverage.
Speaker #5: Importantly, since we began reinvesting in the cape size sector, the Baltic cape size index has averaged over $20,000 per day in 17 of the last 22 months, or approximately 80% of the time.
Speaker #5: Looking at the prior 22 months, the BCI only crossed $20,000 a day in four of those, or just 18% of the time. Turning to slide 8, with an industry low net loan-to-value ratio, a low cash flow break-even rate, and $500 million in undrawn revolver availability, we believe Genco remains in a highly advantageous position to successfully operate in current volatile freight rate environment, and continue to differentiate itself from its dry bulk peer group.
Speaker #5: Genco has a scale and operating leverage to benefit from a rising market. By also having significant access to capital to take advantage counter-cyclical opportunities, if they were to arise.
Speaker #5: Building on the sequential TCE improvement in Q2, our estimated Q3 TCE to date is strong, and we continue to see a pickup in cape size and Supermax rates.
Speaker #5: With our leading commercial platform and significant operating leverage, we remain in a strong position to capitalize on improving dry bulk fundamentals. Going forward, we remain focused on executing the three pillars of our value strategy: dividends, deleveraging, and growth.
Speaker #5: Lastly, turning to page 9, Genco continues to prioritize strong corporate governance, which we believe is another key differentiator for the company relative to the peer group.
Speaker #5: Specifically, Genco is the only listed dry bulk company with no related party transactions. We have a diverse and independent board of transparent and provide detailed disclosures on company performance, and initiatives, while striving to provide a clear and thoughtful strategy to shareholders as we execute on our approach to capital allocation.
Speaker #5: We view this as a key part of Genco's identity as a company, and are proud to have been ranked number Research ESG Scorecard for four consecutive years.
Speaker #5: one in the Weber I will now turn the call over to Peter Allen, our Chief Financial Officer.
Speaker #6: Thank you, John. On slides 11 through 13, we highlight our second quarter financial results. Genco recorded a net loss of $6.8 million or 16 cents basic and diluted net loss per share.
Speaker #6: Adjusted net loss is $14 cents per share, excluding a non-cash impairment charge of 0.7 million. Adjusted EBITDA for Q2 totaled $14.3 million. Our cash position as of June 30th, 2025, was $35.8 million, and we have $100 million of debt outstanding, resulting in a net loan-to-value of 7%, as stated on slide 14.
Speaker #6: Pro forma for the acquisition of the 2020-built cape size vessel, we expect our net loan-to-value to be approximately 13%, with capital utilized from the revolver to fund the vessel purchase.
Speaker #6: In July, we closed on our $600 million revolving credit facility under attractive terms, achieving several key objectives as highlighted on slide 15. We increased our borrowing capacity by $200 million or 50%, further strengthening our ability to pursue accretive growth opportunities for the benefit of shareholders, while lowering margin and commitment fees.
Speaker #6: Additionally, with no commitment reductions until March 31st, 2027, Genco maintains the full $600 million of borrowing capacity for an extended period of time adding to our tionality as markets develop.
Speaker #6: Furthermore, the accordion feature could provide an additional $300 million of potential capacity to fund acquisitions. With the revolver structure, we plan to continue to actively manage our cash and debt positions, to reduce interest expense while maintaining access to capital to quickly act on growth opportunities as we did with the most recent agreement to acquire a high-specification fuel-efficient cape size vessel.
Speaker #6: We appreciate the continued support of our high-quality bank group as continue to execute Genco's strategy. Moving to slide 16, we highlight our quarterly dividend policy, which targets a distribution based on 100% of operating cash flow, less a voluntary reserve.
Speaker #6: For Q2, our board of directors declared a 15 cent per share dividend based on operating cash flow of approximately 14.5 million dollars, and a voluntary quarterly reserve of 7.9 million dollars.
Speaker #6: Looking ahead to Q3 2025, we currently have 70% of owned available days fixed a rate of approximately $15,900 per day, as compared to our anticipated cash flow break-even rate, excluding dry docking-related capex of approximately $8,900 per vessel per day.
Speaker #6: Q3 TCE estimates are currently 17% higher than the actual Q2 TCE, which highlight the freight rate improvement seen in June that carried over into July and August to date.
Speaker #6: This improvement has been led by our e size vessels, which in Q3 to date are currently fixed at approximately $21,000 per day, an increase nearly 25% from $17,000 per day.
Speaker #6: In Q2, further highlighting the significant operating leverage of the sector. We note that Genco, like much of the industry, has a large-scale dry docking program in 2025.
Speaker #6: During the first half of the year, we completed dry docking for nine vessels, and have completed three more dry dockings in Q3 to date.
Speaker #6: With another five vessels expected to be completed in the coming weeks. This will result in Genco completing 90% of our full-year 2025 dry dockings by the end of Q3, with only two dry dockings remaining for Q4.
Speaker #6: I will now turn the call over to Michael Orr, our dry k market analyst, to discuss industry fundamentals.
Speaker #7: Thank you, Peter. Beginning on slide 18, the dry bulk freight rate environment meaningfully improved in June, crossing the $30,000 per day level, in the middle of the month, or double the May average.
Speaker #7: This increase was driven by record port headland iron ore shipments, as Australian miners pushed to hit June 30th fiscal year-end targets. While in the Atlantic Basin, exports Brazil ramped up over lower levels seen earlier in the year, together with continued strong bauxite shipments.
Speaker #7: Notably, Brazilian iron ore exports from April to June increased by 20%, which on an annualized basis represents enough cargo to absorb approximately 100 capes or nearly 5% of the cape size fleet.
Speaker #7: Limited cape size net fleet growth, combined with augmented seaborne cargo availability, have resulted in a 30% increase in volatility in the cape size sector this year versus last year.
Speaker #7: In July, we once again saw the PCI exceed the $30,000 threshold, hitting a year-to-date high of nearly $32,000 a day on July 25th, and representing a 132% increase from the prior two-week period.
Speaker #7: We believe that freight rate developments so far in 2025 represent a more traditional trajectory than what 've seen in recent years, as this year we've seen a softer Q1 and a sequential improvement in Q2, followed by a stronger market in the second half of the ar.
Speaker #7: Over the last decade, 90% of the time, the highest quarter for capes has occurred in Q3 or Q4, which appears to be playing out once in.
Speaker #7: Turning to page 19, we point to China's steel complex. Specifically, the untry's iron ore imports fell by 3% during the first half of the year, but increased to over $100 million tons in June, as seaborne supplies recovered.
Speaker #7: China's iron ore port inventories have been drawn down by 11% from earlier from the earlier year high, and are now 9% lower on a year-over-year basis.
Speaker #7: Iron ore prices continue to be resilient around the $100 per ton threshold, while steel prices have risen, increasing margin for steel mills. China's steel production has decreased year over year by 3%.
Speaker #7: China continues to export over 10% of the steel it produces, mostly going to other Asian countries. China's excess steel has remained a point of contention, prompting protectionist measures from various countries.
Speaker #7: We believe that if China's exports come under pressure, the country will likely boost demand domestically through stimulus measures to achieve growth targets. Which could result in augmented demand for raw materials.
Speaker #7: Turning to pages 20 and 21, we highlight the long-haul iron ore and bauxite trade growth expected from Brazil and West Africa in the coming years.
Speaker #7: While growth this year is expected to be marginal, there are significant growth volumes 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 #7: Supply constraints in cape size new building activity, combined with added long-haul trading distances, are two key catalysts for the sector. In terms of the grain trade, as detailed on page 22, China has ramped up purchases of Brazilian soybeans this year, securing supplies ahead of peak Q4 US grain season.
Speaker #7: Firm grain shipments, in addition to an uptick in full volumes late, have been supportive of the Supermax sector in recent weeks. Regarding geopolitical trade deals and egotiations, we note that with some recent deals, most notably Japan and Indonesia, there have been commitments to purchase US agricultural products.
Speaker #7: These potential purchases could be supportive of long-haul grain trades, and possibly provide another market for US agricultural products in case of lower shipments to China this Q4 during peak season.
Speaker #7: Regarding the supply side outlined on slide 23, net fleet growth in the year to date is 3% on an annualized basis, split between 2% net fleet growth for cape sizes and 3% to 5% net fleet growth for Panamaxes, down to handy sizes.
Speaker #7: Cape size segment continues to have the smallest order book among the dry bulk sectors at 9% of the fleet. Specifically, only 20 capes delivered in the first half of the year, the least amount of first-half cape deliveries in over 15 years.
Speaker #7: 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 dry bulk fleet since 2010.
Speaker #7: 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 dry bulk order book as a percentage of the fleet.
Speaker #7: This implies net replacement of tonnage over time, as opposed to any material net fleet growth. While we expect volatility in the freight market, the foundation of a low supply growth picture provides a solid basis for a constructive view of the dry bulk market moving forward.
Speaker #7: This concludes our ation, and we would now be happy take your estions.
Speaker #3: Thank you. Ladies and gentlemen, we will now conduct a question and answer session. And our first question comes from the line of Omar Nokta with Jeffries.
Speaker #3: Your line is open.
Speaker #8: Thank you. Hey, guys. Thanks for the presentation. good ning. morning. Congrats, by the ay. congrats on the the new credit facility. Obviously, it gives you plenty of flexibility and, and, and, and haps some firepower, you you've acquired this 2020-built cape.
Speaker #8: looks like a high-quality ship. could you maybe just talk about, you ow, the attractiveness of that vessel and why ou made it, and what's your appetite for for more?
Speaker #5: Yeah. So, on on the vessel front, Omar, you know, it's it's it's a gem. It's it's Japanese built. We know that that's, you know, from a from a performance standpoint, the highest quality that that's that's turned out.
Speaker #5: It's 2020, so it's relatively new. So very high on fuel efficiency standpoint. and then also has a a scrubber. It's it's just a very well-rounded vessel that that we're y happy that we were able to conclude.
Speaker #5: in terms of further appetite, we we definitely have more appetite on the cape size sector that you know, that we referenced in the in the opening remarks.
Speaker #5: We think that sector you know, while we're positive on all the the, the, the dry bulk vessels, we think the cape size sector has the most compelling supply and demand fundamentals because there is demand growth coming for the larger ships in terms of iron ore out of West Africa, more bauxite, and and we expect even valet to continue to up their production.
Speaker #5: So you've got demand growth, but then you also have a very low supply situation. It's actually the lowest supply situation within the within the dry bulk sector.
Speaker #5: it doesn't mean that you know, we're we're still focused on minor bulks, and we have a very robust commercial platform that that we're le to use for trading as well.
Speaker #5: on on the arbitrage side, but I think you'll see most of what we do, at least for the time being, a little more trying to wait a little more towards the larger vessels.
Speaker #8: Okay. Thanks, John. And I guess maybe just on that point, you monetized some of the older vessels last year. do you think you'll do more of that maybe selling more of the Supras?
Speaker #8: To fund the cape acquisitions to kind of get more weighted there, or do you want to keep that fleet intact?
Speaker #5: I think, look, in general, we want to keep the fleet. However, you know, there there are two ships right now, the Genco Predator and the the Genco Procardi, which are 20 years old.
Speaker #5: So those are definitely a focus for divesting from a fleet renewal standpoint. You know, we we tend to to time our our our buys and our sales at pretty attractive opportunities.
Speaker #5: And quite frankly, a few months ago, the Supermax market was soft. You know, we were at $9,000 a day. And there was not a lot of action on the older ships in the S&P market.
Speaker #5: That that is now changed. Supermax rates are up 40% since then. and we're seeing a lot more interest on even the older ships. And you know, we're we're, as you know, we're always about maximizing, you ow, price on these ships.
Speaker #5: So and we have the balance sheet to be patient during these periods of time. So yeah, I do think before the end of the year, you'll see a couple more go.
Speaker #8: Okay. Thanks, John. appreciate . I'll pass it back.
Speaker #5: Thanks, Omar.
Speaker #3: And your next question comes from the line of Liam Burke with B Rally Securities. Your line is open.
Speaker #9: Thank you. Good morning, John. Good morning, Peter. Good morning, Michael.
Speaker #4: Good morning, Liam.
Speaker #9: John, the the the supply-demand layout for the for the cape size is pretty clear. we've seen nice move on the non-cape size rates. is it just grain?
Speaker #9: Is Michael laid out, or you know, what do you see driving this 40% growth? In rates from the bottom?
Speaker #4: Oh, it's definitely a robust corn crop out of Brazil, soybeans as well. That that is been helpful. I would say coal is also starting to come back.
Speaker #4: We had a we had a lull for a few months on the on the coal side, but we're seeing more coal being shipped also.
Speaker #4: So I think it's I think 's a combination. And you know, it it this is a this is a big and tangible, but we're mostly on the other side of knowing what's happening on the tariff front.
Speaker #4: And and I do think while it does it it never directly affected dry bulk shipping, I I do believe that it added some negative sentiment into the market.
Speaker #4: and that seems to be while the tariffs may not be behind us, think knowing of knowing what the what the tariffs are going to is is pretty lear now.
Speaker #4: So we're able to operate effectively.
Speaker #9: Okay. on the getting back to capes, you've good news, bad news. You've got tight supply, steady demand, asset values are higher, you especially in your fleet assets.
Speaker #9: What does that bode for potential asset purchases on the cape size? Are they still deals out there that make sense?
Speaker #4: There are deals that make sense, and then there are deals that don't make sense. we do a lot analysis looking at, you know, from a historical standpoint, where we're buying in terms of percentiles.
Speaker #4: And I an, I just give you an example. The 2020 that we bought, when when you actually ran the cash flows and the return numbers at what we paid for it versus we were also looking at a 2017 build, and the and the 2021 out.
Speaker #4: so you ow, we we obviously moved in that direction. So it it look, it all comes down to to price. I agree. Asset values are firm, particularly in the in the modern vessels.
Speaker #4: But starting in the second half of next year, which is when we believe the real demand growth will come, from the iron ore front and and West Africa, going into very low supply in '27, '28, you know, we we just see a longer runway.
Speaker #4: then maybe what we've what what you know, what history has has given to us. Having said that, the volatility is not going away. So that that's important to recognize.
Speaker #4: But but we do have a a positive view for the next, at least the next few years in terms of what we can see on the supply side.
Speaker #9: Volatility and shipping rates? Thanks, John.
Speaker #4: Yeah. Not profound, know.
Speaker #9: Well, shocking. Anyway, thanks, John.
Speaker #4: Thanks, Liam.
Speaker #3: Again, if you would like to ask a question, press star 1 on your telephone keypad. And your next question comes from the line of Chris Robertson with JP Morgan.
Speaker #3: Oh, with Deutsche Bank. Sorry about that.
Speaker #10: Hey, good morning. And thanks for taking my estions. John, just returning to the the fleet renewal front, obviously with the the purchase the modern cape here.
Speaker #10: But can you touch on other vessel upgrades and equipment that you guys are currently looking at and working on during your dry docking process that makes the current ships more efficient?
Speaker #10: can you talk about that in terms of kind of fuel efficiency and performance? And what do ou think the next technological landscape kind of looks ike over the coming years outside of the normal discussion around alternative fuels?
Speaker #4: So we have we've been installing energy-saving devices on our ships as we've been dry docking. And and that can vary from used docks, new propellers, certainly new paint systems.
Speaker #4: we're using much more robust paint systems. we are and and I should add, we're we're exploring which goes a little bit to our next question.
Speaker #4: But it it we're exploring certain robotic cleaning devices which stay with the ship. So that so that we can clean more often. And and and actually cut costs on the cleaning side.
Speaker #4: So that's that's a a small thing we're oking at as well. But it's really the energy-saving devices. And you know, we think we can save around 5% on the fuel side.
Speaker #4: so very quick payback on the money that we're that we're ending. in terms of things you know outside of alternative fuels, which I unfortunately, I I still think are quite a ways away in terms of really being used, we have been doing we have been using biofuel and biofuel mixes.
Speaker #4: That that's been helpful, ly with with the EU system. we've looked at carbon capture. We're not we're not fully there on that yet, but but we've looked at it.
Speaker #4: and you know, then there's always the the long shot, but interesting. And that's the the nuclear option, so to speak. because I I do think that that's a a really interesting technology that could be one of these days in the future to develop by the shipping industry.
Speaker #8: All right. Yeah. Interesting color. that's it on my end. Thank ou.
Speaker #4: Okay. Thanks, Chris.
Speaker #3: Your next question comes from the line of Paul Frett with AGP Alliance Global Partners. Your line is open.
Speaker #11: Hey, John. You covered a lot of ground about the market and just capital allocation. Can you just close the loop on how you're ing to use the stock buyback program?
Speaker #4: Yeah. So we we we did not do any any shares during the last quarter. and I think the most important thing is that the program is viewed as supplemental to dividends.
Speaker #4: It's a it's an add-on. because dividends are the primary means of returning capital in our mind as shareholders. but as of you know this quarter, we didn't really observe market conditions that would have led us to buy.
Speaker #4: under the program. So it's in place. And if we have downward volatility, you know, such as we saw a few months ago, then then we have it at our disposal.
Speaker #11: Great. That's helpful. And then you know history never is exactly the same. It but you now have a shareholder that's close to 10%. I'm not sure you want to comment, but can you just give us a flavor for you know whether you've had any discussions with the new shareholder?
Speaker #4: So look, I mean, we speak to estors all the time. but we we clearly don't talk details about you know who we're speaking to or or or the nature of that conversation.
Speaker #4: I I would refer you to Diana's public statements, which indicate this is a passive investment. But I I can't comment any further on that at this point.
Speaker #11: Sounds good. Thanks.
Speaker #4: Thanks, Paul.
Speaker #3: And your next question comes from the line of Michael Matheson with Sidori. Your line is open.
Speaker #10: Good morning, gentlemen.
Speaker #4: Good morning.
Speaker #10: just a couple of questions for me. In your slides last quarter, you showed that Chinese coal demand had declined overall. And there was a shift in demand from the US to Brazil.
Speaker #10: what did you see in terms of Chinese demand this quarter?
Speaker #4: From an import standpoint, we've we've definitely seen it fall off. the exception to that is over the last month or so, we've started see the the Chinese buying again.
Speaker #4: you know, we we could we could see a recovery as we're going into the end of the year. But for the for the quarter, we definitely saw soft Chinese buying on the coal side.
Speaker #10: Okay. There was a lot of information about a a rebound in TCE rates in Q3 here. Do you have an early read on what TCE might look like in Q4?
Speaker #4: No. I mean, you can look you can look at the forward curve. and the forward curve is showing you know, a nice strong Q4.
Speaker #4: But you ow, predicting actual rate levels is is difficult. We're we're fairly adept at predicting direction. but I would say the fleet is is mostly spot.
Speaker #4: We have you ow maybe not even 5% fixed for the fourth quarter. So we will be able to we will be able to take vantage of of what what the fourth quarter brings in terms of rates.
Speaker #4: And the other nice thing is, as we mentioned earlier, we we have most of our dry dockings done. I think there are only two dry dockings in Q4.
Speaker #4: So we're going to have very high utilization of the fleet in Q4. And our our break-even cash flow break-even comes back down below $10,000 a day at somewhere around $9,800 a day.
Speaker #4: So we're we're set up nicely for for Q4.
Speaker #10: Terrific. That's the information I was looking for. I never thought you could pick a to the dime, or anything like that. Well, thanks, gentlemen.
Speaker #4: Thank ou.