Sunday, November 9, 2008

Nordic American Tanker Enjoys Solid Third Quarter

Nordic American Tanker (nyse:NAT) enjoyed a solid third quarter, surpassing analysts' estimates for earnings by 2 cents a share.

Earnings for the quarter surged to $42.7 million, or $1.24 a share, in sharp contrast to the $1.2 million loss, or 4 cents a share suffered in the third quarter of 2007. Analysts were looking for $1.22 a share for earnings.

Considering the company took a 10 cents-a-share charge on income lost from drydockings, it was a good quarter. The company said out of the 50 days ships were out of service, 33 of them were planned. Until 2010 there are no more scheduled drydockings.

Much of the success for the third quarter was because the average vessel received a day rate average of $68,362 a vessel, much better than the expected average of $64,000 a vessel. The company added that what is called the Suezmax spot market is still going strong in the fourth quarter as well.

Suezmax tankers refers to the largest ships that are able to travel through the Suez Canal. Rates for the fourth quarter are over $55,000 on average, and trading at $65,000 a day. This is far above the $40,000 some analysts are looking for for the fourth quarter.

At this time expectations are day rates for 2009 will be around $37,000 for Suezmaxes, which would end up paying out $3.50 a share for the year. That would be a significant decline from the $4.89 paid out this year. It remains to be seen if the $37,000 is a realistic figure, as the market has resisted downward moves so far.

Nordic announced it would pay out $1.61 a share in dividends on Friday, far above the $1.50 some were looking for.

Top executives told investors that they are in a solid position as a company, even in the current economic crisis, and are in good shape going ahead. They reminded shareholders that they have no debt, finances are in good shape, and they have a $500million revolving credit line in place through September 2013.

Some of that credit line is being used to finance two new vessels to be put into service in the early part of 2010. There is also $31 million in cash available as of the end of the third quarter.

The top variable to consider going ahead is the exposure Nordic has in the spot market, with only one of their twelve tankers on a long-term fixed rate charter. The other eleven are working in the spot market. As mentioned earlier, the spot market looks to be weaker in 2009 than in 2008, yet it was supposed to be weaker in the third and fourth quarter, and yet has remained much stronger than expected.

While the current economic conditions should eventually slow things down for Nordic, you've got to feel pretty good about their prospects and how the leadership in the company has been managing the risk.

No comments: