Eagle Bulk Shipping Earnings Call Nuggets: Supply & Demand Analysis, Rate Environment

Eagle Bulk Shipping (NASDAQ:EGLE) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Supply & Demand Analysis

Alex Hahn – Citigroup: This is (Alex Hahn) in for Chris. We wanted to know if the demand was supportive of the spot market rates going to the back half of the year and when we can see rate recovery?

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Sophocles N. Zoullas – Chairman and CEO: That’s a great question. I would say the whole downturn in the market going back to the end of 2008 because it’s been a very protracted bad market has never really been a demand problem apart from the first six months after Lehman Brothers, which was a dislocation in the banking system when there was demand for cargoes, but people couldn’t get (indiscernible) issue. Our view has been pretty consistent throughout the last four and a half years, that it’s never been a demand problem. The problem is really been a supply problem as I characterized in the remarks earlier, which we view as subsiding pretty quickly through this year – really end of this year into next year, and by the summer of next year quite rapidly. So, our view on demand is that it’s been stable throughout. Our outlook on demand for the next year is good as you know, because we typically see 20 to 25 different commodities because we trade Supramaxes, which carry every kind of dry bulk cargo, we feel we have very good visibility on dry bulk commodity demand. Our view is that across all the commodities we see there is generally healthy demand, the only thing I will comment is that we did notice a dislocation in iron ore trade in the first quarter, which impacted the bigger ships, but it’s only a small part of our trade that’s why we were able to move into a lot of other markets, and also you saw us move more into the minor bulks 55% of our cargoes carried, which is reflective of a weaker market where we move into the cargoes that the bigger ships can’t carry. I hope that answer the question.

Alex Hahn – Citigroup: Just another question about KLC. Are those issues now over or do you expect other settlements along the way?

Sophocles N. Zoullas – Chairman and CEO: No one has a crystal ball, but we are feeling good about things. As you know and as Adir mentioned this settlement was approved by the courts in Korea. So we are feeling pretty good about things.

Rate Environment

Michael Webber – Wells Fargo: In your 10-K you guys put it along with your results which was really helpful. You kind of gave some updated commentary around where you are with your covenants and what rates – where rates were and where they could go and then how that plays with your covenants. Can you maybe try to quantify, I guess, as we look at – you talked to potential improvement – short-term improvement in the rate environment in the back half of the year and then long term fundamentals remaining solid. Can you maybe talk to what rate you guys need to see in order to maintain compliance with your covenants through kind of Q1 ’14 time frame. I know it is a tough question to answer, but if you could give your best shot it will be helpful?

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Sophocles N. Zoullas – Chairman and CEO: I think the best way for us to answer that is as you know we probably put out more detail, and as you highlighted not just in the press release but also in our Ks and Qs. I mean, we put out everything. It is a very transparent company here including charter rates on the fleet ship-by-ship duration. We give you the BSI. You can look at the forward curve. We have given you all of the covenants. So, rather than on the call, go through ship by ship charter rates, it’s all out there. So, I would say just if you look at all of the data that I just mentioned, it’s pretty easy to calculate.

Michael Webber – Wells Fargo: Right. I’m out of pocket right now, but we certainly have something we do calculate. I’m just trying to think about from (your) perspective, if you are not expecting a rate improvement for the back end of the year and ’14 is certainly still a question mark. How big is that delta? And then is that something what you already having conversations with your vendors about another set of waivers. You got a fair amount of runaway from analyst perspective, but the waivers certainly come back into play, so just an update there?

Sophocles N. Zoullas – Chairman and CEO: No, I would say we differ little bit with your view, which is we are – we think that the way the market is moving that I can tell you the magnitude of it, but I think end of this year is better than beginning of this year and we’re feeling pretty good about 2014 right now. So, I would say, we’re feeling – we’re generally feeling good about the market. Not that it’s a great market today, but the trajectory of the market as we outlined in the last call and this call, is about in line with what we expect…

Michael Webber – Wells Fargo: You also mentioned in that same sets in the Q, some other cost saving measures and kind of low hanging fruit, just trying to get – to kind of bolster your liquidity and your covenant compliance, is that already reflected in your results? Or is that something you are referring to in terms of ability to kind of block and tackle throughout the back half of the year, in other ways, you can kind of try to fight for compliance?

Sophocles N. Zoullas – Chairman and CEO: What we did is – last year, we put in place a cost-saving program, and you know from when we did it last year to the time we implemented it takes a couple of months. I think what you guys are seeing in this result is the positive results of a program that we implemented last year, and it’s meaningful and it’s been very helpful to the Company in a tough market. I think is indicative of a proactive management team in a tough market.

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Michael Webber – Wells Fargo: In terms of what you’re looking at through the back half of the year there are way to quantify what you think you potentially save and what sort of cash impact that could have?

Sophocles N. Zoullas – Chairman and CEO: I would say this quarter was a really great quarter in terms of our cost saving program. But I would say wait until you get another quarter, wait until we report 2Q, so you can get kind of a run rate a little because I think that’s what you’re asking, right?

Michael Webber – Wells Fargo: Yeah.

Sophocles N. Zoullas – Chairman and CEO: So I would say this is a great quarter for cost-saving, but probably wait another quarter to get a run rate.

Michael Webber – Wells Fargo: Now, I guess beyond that and beyond the rate recovery, in terms of just your overall liquidity and maintaining a net cash position or net cash position certainly. Is there anything else you see out there that you guys can do besides looking for improvement in pricing and there is blocking and tackling the KLC shares I think they lock-up in November, I’m sure you don’t know what you want to do with those yet and if you did, you want to talk about it, but anything else out there that you see that you see that you could do to potentially bolster liquidity?

Adir Katzav – CFO: The truth is in this market, which – Q1 was a horrible beginning and okay recovery towards the end as I said. Look I think the proof is in the results you know, we have an effective cost-saving program that we put into place in ’12 that you’re seeing the results in Q1 of ’13 you know we are very happy with the result of the KLC transaction that was approved in Korea recently. We are in the right asset class by far. I mean, I remember when people were criticizing me couple of years ago about why do we have young Supramax fleet and why are we not in Capes and I think the answer is pretty self-evident right now having a five-year-old fleet one of the larger Supramax owners, having a global set up and presence where we are able to do COAs index and this dynamic charter strategy and stay short and tenure is where we want to be because when the market recovers we don’t want to miss it. We want to be participating in it.

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Alex Hahn – Citigroup: This is (Alex Hahn) in for Chris. We wanted to know if the demand was supportive of the spot market rates going to the back half of the year and when we can see rate recovery?

Sophocles N. Zoullas – Chairman and CEO: That’s a great question. I would say the whole downturn in the market going back to the end of 2008 because it’s been a very protracted bad market has never really been a demand problem apart from the first six months after Lehman Brothers, which was a dislocation in the banking system when there was demand for cargoes, but people couldn’t get (indiscernible) issue. Our view has been pretty consistent throughout the last four and a half years, that it’s never been a demand problem. The problem is really been a supply problem as I characterized in the remarks earlier, which we view as subsiding pretty quickly through this year – really end of this year into next year, and by the summer of next year quite rapidly. So, our view on demand is that it’s been stable throughout. Our outlook on demand for the next year is good as you know, because we typically see 20 to 25 different commodities because we trade Supramaxes, which carry every kind of dry bulk cargo, we feel we have very good visibility on dry bulk commodity demand. Our view is that across all the commodities we see there is generally healthy demand, the only thing I will comment is that we did notice a dislocation in iron ore trade in the first quarter, which impacted the bigger ships, but it’s only a small part of our trade that’s why we were able to move into a lot of other markets, and also you saw us move more into the minor bulks 55% of our cargoes carried, which is reflective of a weaker market where we move into the cargoes that the bigger ships can’t carry. I hope that answer the question.

Alex Hahn – Citigroup: Just another question about KLC. Are those issues now over or do you expect other settlements along the way?

Sophocles N. Zoullas – Chairman and CEO: No one has a crystal ball, but we are feeling good about things. As you know and as Adir mentioned this settlement was approved by the courts in Korea. So we are feeling pretty good about things.

A Closer Look: Eagle Bulk Shipping Earnings Cheat Sheet>>

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