Genco Shipping & Trading - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 came in seasonally weak: revenue fell to $71.3M and EPS to $(0.28), with EBITDA of $7.9M; management still declared a $0.15 dividend and launched a $50M buyback, signaling confidence despite near‑term softness.
• Versus consensus, Q1 revenue materially beat ($71.3M vs $41.9M estimate), while EPS was essentially in line to a slight miss (−$0.28 vs −$0.28 estimate); Q2 TCE to date of $14,042 (68% fixed) points to improving rates into Q2; estimates marked with asterisks retrieved from S&P Global.
• Near‑term headwinds included drydocking and weather-related cargo disruptions, but March rate snapback and materially higher Q2 Capesize fixtures (~$18,700/day) underscore operating leverage and an improving backdrop.
• Catalysts: $50M buyback authorization, continued dividend discipline via reserve flexibility, and constructive supply-demand (low Capesize orderbook, long‑haul tonnage growth).

What Went Well and What Went Wrong

What Went Well

• Proactive capital returns: $0.15 dividend (23rd consecutive) despite formula indicating zero, supported by reducing the voluntary reserve from $19.5M to ~$1.1M; $50M buyback program added as incremental tool to dividends.
• Rates improved into Q2: fleet‑wide TCE to date $14,042 for 68% of owned days; Capesize ~$18,700/day (+40% vs Q1) indicating momentum and sector operating leverage.
• Balance sheet strength preserved: net loan‑to‑value ~6%, cash $30.6M, revolver availability ~$324M, enabling both returns and opportunistic growth.

Quote: “Importantly, the share repurchase program is incremental to our quarterly dividend policy, which we intend to maintain as our primary method of returning cash to shareholders.”

What Went Wrong

• Seasonal softness and operational impacts: Q1 revenue declined YoY and QoQ with TCE down to $11,884/day; net loss of $11.9M reflecting lower rates, fleet size, and increased drydock activity.
• Minor bulk and coal demand volatility; USTR port fee uncertainty temporarily stalled chartering for a multi‑week stretch, adding pressure to Q1 volumes.
• Higher DVOE YoY ($6,592/day vs $6,275/day) driven by crew, repair/maintenance, and insurance costs.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited first quarter 2025 earnings conference call 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 at 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. 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.

Good morning. Before we begin our presentation, I note that 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. 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. 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 31st, 2024, and the company's reports on Form 10-Q and Form 8-K subsequently filed with the SEC. At this time, I would like to introduce John Wobensmith, Chief Executive Officer of Genco Shipping & Trading Limited.

John Wobensmith (CEO)

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. 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. For additional information, please also refer to our earnings presentation posted on our website. Beginning on slide five, 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. Specifically, we declared a $0.15 per share dividend, extending our track record of providing 23 quarters of consecutive dividends and marking the longest stretch of uninterrupted dividends in our drybulk peer group.

Over this period, Genco has declared $6.765 per share of dividends, representing 50% of our current share price. Notably, for the first quarter of 2025, our dividend formula, including a voluntary reserve of $19.5 million, would not have produced a dividend. However, management and the board chose to reduce the reserve from $19.5 million-$1.1 million for the quarter, resulting in the $0.15 per share dividend. This highlights our commitment to our dividend and returns to shareholders, as well as our favorable view of the long-term fundamentals of the drybulk industry and the improving freight environment in Q2 so far. We have paid 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.

We believe that significant equity market volatility has resulted in a disconnect between our share valuation and the underlying fundamentals of our business. 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. 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. Importantly, the share repurchase program is incremental to our quarterly dividend policy, which we intend to maintain as our primary method of returning cash to shareholders.

Turning to slide seven, with an industry low net loan-to-value ratio of 6%, a low cash over break-even rate, and over $320 million in undrawn revolver availability, 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 drybulk peer group. Going forward, we remain focused on executing on the three pillars of our value strategy: dividends, deleveraging, and capitalizing on accretive growth and fleet renewal opportunities. We also intend to act opportunistically in carrying out our new share repurchase program to create long-term shareholder value. From a drybulk market perspective, in January and February, the freight rate environment experienced typical seasonal factors as weather conditions in key export regions reduced seaborne volumes, temporarily misaligning the supply and demand balance, resulting in pressure on freight rates.

However, in March, freight rates rallied as some of these temporary factors dissipated. We saw cape rates rise from under $6,000 a day to near $24,000 a day in a matter of weeks, highlighting the significant operating leverage inherent in the business. As we look forward, with added long-haul tons hitting the market towards the end of 2025 and into 2026, together with a historically low Capesize order book, the potential catalysts are clear. We currently are in an operating environment characterized by compelling drybulk supply and demand fundamentals, but also an ever-changing geopolitical landscape. 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 enables Genco to not only continue to pay dividends in periods of downward volatility, but also to take advantage of accretive growth opportunities with a wide variety of capital allocation tools at our disposal. We believe this capital allocation strategy works well in 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, our Chief Financial Officer.

Peter Allen (CFO)

Thank you, John. On slides nine through 11, we highlight our first quarter financial results. Genco recorded a net loss of $11.9 million, or $0.28 basic and diluted net loss per share. EBITDA for Q1 totaled $7.9 million. 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 have paid down 80% of our debt, or nearly $360 million, which has resulted in a net loan-to-value of 6%. 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-over-year, which was $1.5 million lower, equating to $6 million annualized, or approximately $400 per vessel per day on our cash flow break-even rate.

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 accretive growth opportunities as markets develop. Turning to slide 13, we present a current snapshot of Genco's financial position as of March 31, 2025. 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 net loan-to-value of 6% on our 42-vessel fleet. Additionally, we have $324 million of undrawn revolver availability, which we can utilize to further invest in our fleet to capture accretive growth opportunities among other uses. Moving to slide 14, we highlight our quarterly dividend policy, which targets a distribution based on 100% of operating cash flow, less a voluntary reserve.

For the first quarter, our board of directors declared a $0.15 per share dividend based on operating cash flow of approximately $8 million and a voluntary quarterly reserve of $1 million. 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 flow break-even rate, excluding drydocking-related CapEx, of $8,750 per vessel per day. Q2 TCE estimates are currently 18% higher than the actual Q1 TCE, which highlight the freight 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.

We note that Genco, like much of the industry, has a large-scale drydocking program in 2025. We completed drydocking on four vessels during the first quarter, with another three vessels that entered the yard in Q1. We plan to continue to front-load these drydockings during the first half of the year, as we seek to maximize fleet-wide utilization in the second half of the year, which tends to be seasonally stronger from a freight rate perspective. Lastly, regarding capital allocation, over the course of this drybulk 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.

Going forward, we remain focused on these three pillars while adding an additional capital allocation tool in the new share repurchase program, as we continuously evaluate various uses of capital to drive shareholder value. I will now turn the call over to Michael Orr, our Drybulk Market Analyst, to discuss industry fundamentals.

Michael Orr (VP of Finance)

Thank you, Peter. Beginning on slide 16, the drybulk freight rate environment was impacted by seasonal factors, including weather-related disruptions in Brazil and Australia, reducing cargo availability, the front-loaded nature of the new building deliveries, as well as the timing of the Chinese New Year. After averaging over $20,000 per day for 14 consecutive months from October 2023 to November 2024, the Baltic Capesize Index averaged approximately $10,000 per day from December to February, bottoming at $5,900 on February 12th. However, within weeks, the BCI rose over 300% to nearly $24,000 per day by mid-March, highlighting the significant upside potential of the sector. Currently, the BCI and BSI are at levels of $15,000 and $10,000 per day, respectively.

Turning to page 17, we point to China's steel complex, specifically the country's iron ore imports, fell by 8% year-over-year during the first quarter, impacted by the reduction of seaborne supplies. China's iron ore port inventories have been drawn down by 7% from earlier year high and are now 3% lower on a year-over-year basis to supplement the downward move in imports. Importantly, China's steel production has increased year-over-year by 1%, with March being the strongest month of output since May 2024. China continues to export over 10% of the steel it produces, 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 point of contention, prompting protectionist measures from various countries.

We believe that if China's exports come under pressure, the country will have to boost demand domestically to achieve growth targets, which could result in augmented demand for raw materials. Turning to pages 18 and 19, we highlight the long-haul iron ore and bauxite trade growth expected from Brazil and West Africa in the coming years. 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 Capesize vessels, which is more than the current Capesize new building order book. Supply constraints and Capesize 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 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. Currently, tariffs on U.S. agricultural products make them uncompetitive 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. Regarding the supply side outline on slide 21, net fleet growth in the year to date is 3.3% on an annualized basis, split between 2% net fleet growth for Capesizes and 3%-5% net fleet growth for Panamaxes down to handy sizes. The Capesize segment continues to have the smallest order book among the drybulk sectors at 8% of the fleet, specifically only 11 capes delivered in Q1, the least amount of Q1 cape deliveries in over 15 years.

Furthermore, there are currently only 28 more cape deliveries expected this year. 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 drybulk fleet since 2010. 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 drybulk order book as a percentage of the fleet. 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 our constructive view of the drybulk market going forward. This concludes our presentation, and we would now be happy to take your questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now conduct the 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. Your first question comes from the line of Omar Nokta with Jefferies. Please go ahead.

Omar Nokta (Analyst)

Hey, guys. Good morning. Just a couple of questions on my end, and maybe, you know, John, you opened with this or touched on this in some good detail, but just wanted to ask if you could maybe just explain a bit more on the share buyback. Obviously, it's a big number, I would say, relative to the market cap and the float. Maybe just how did you come about the disagreement on the buyback, and how do you see yourselves putting it to work? I guess just a reminder, how does that work with the dividend policy currently in place?

John Wobensmith (CEO)

Okay. Let me take the dividend policy first. I cannot stress enough this is a bolt-on. It is incremental to the dividend policy. It will not affect not only our ability but our decision to pay dividends going forward. The formula is the same. Obviously, if there is downward volatility, we will continue to pay dividends as we have this quarter, as well as we had a couple of quarters in 2023. Incremental. I would say that it was put in place for very opportunistic reasons. I do not look at it as we are going to consistently be in the market buying shares. It is really to protect and take advantage if we see the extreme volatility downwards that we saw a few weeks ago.

You'll also probably notice there's no expiration date on the share buyback program, so it's something that we plan to have in place for the foreseeable future. In terms of sizing it, we looked at what others have done, not only in shipping but also across several other industries, and as a percentage of market cap, we think it's the right number.

Omar Nokta (Analyst)

Thanks, John. That makes a lot of sense. I guess maybe just in that context, in terms of, I guess there are two parts to kind of the share valuation. There is the buyback, perhaps in response to these aggressive moves in the market. Then there is also just, say, the underlying discount valuation that the stock currently has relative to asset values. Maybe just as you think about asset values specifically, how are you thinking about those values, or 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. I just wanted to get your perspective on what is behind sort of this market remaining buoyant as it has been.

John Wobensmith (CEO)

Yeah. It's not only buoyant, but it's actually moved up to some degree over the last couple of months. You know, first of all, there's just not a lot of newer tonnage that is being let go, that is being put on the market for sale. A lot of the, most of the tonnage and the liquidity in the S&P market is coming from older ships. But the newer vessels clearly are holding value. They've increased a little bit. 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 to remain firm. As we all know, when you're ordering today, you're really talking about late 2028, early 2029 delivery at this point. I think that also keeps, has been keeping these prices firm.

Omar Nokta (Analyst)

Got it. Thanks, John. I'll turn it over.

John Wobensmith (CEO)

Thanks, Omar.

Operator (participant)

Your next question comes from Liam Burke with B. Riley Securities. Please go ahead.

Liam Burke (Analyst)

Thank you. Good morning, John. Good morning, Peter.

John Wobensmith (CEO)

Good morning.

Liam Burke (Analyst)

The question I had is, when we're looking at the minor bulks, I mean, you parsed up the bauxite and iron ore trade and the grain trade. How are you viewing coal and their influence on the non-Capesize vessels?

John Wobensmith (CEO)

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 coal has come back into the market. I would not call it booming, but it is certainly there, slow and steady. I think if you look at the minor bulks, you have a few things going on. One, there is a front-loaded delivery schedule, which is the case in most years. There has been 5% annualized net fleet growth so far this year. That is an annualized number, just to be clear. Q1, you know, we are in between grain season, South America versus U.S. Gulf, but I also think there are some questions around how much soy and corn will actually come out of the U.S.

Gulf as we get into the season later this year, just because China has been buying 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. There was also a lot of uncertainty around USTR and who was going to be paying port fees and who was not. That definitely stopped the market for a few weeks as people were trying to figure out how to build language into charter parties so that it did not become the responsibility of the ship owner. Things slowed down significantly. In fact, 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. I think that also put pressure on the minor bulks in the first quarter.

Liam Burke (Analyst)

Great. 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?

John Wobensmith (CEO)

Yeah. Look, net debt zero is still a goal. We could easily get there by the end of this year, all things remaining equal right now. You know, having said that, it does not mean that if an acquisition comes up and it is accretive to earnings, cash flows, and dividends, that we will not lever up a little bit. You are not going to see us in the 50%-60% kind of leverage. You know, maybe it goes up as high as 30%, but then we bring it back down, just like we have in the past. I think, again, you know, the company is just so well set up to do those types of things. That is why we think we have got the best risk-reward position right now.

Liam Burke (Analyst)

Great. Thank you, John.

John Wobensmith (CEO)

Okay, Liam. Thank you.

Operator (participant)

Your next question comes from Poe Fratt with Alliance Global Partners. Please go ahead.

Poe Fratt (Analyst)

Hey, good morning.

John Wobensmith (CEO)

Good morning, Poe.

Poe Fratt (Analyst)

John, can you expand on the U.S. trade decision? You put a little bit of a comment in your 10-Q about the exemption for less than 80,000 deadweight tons, I think. Can you expand on whether you think you're going to be impacted, if at all, by the port fees?

John Wobensmith (CEO)

Yeah. So the short answer is we do not see any impact. We will be exempt for our U.S. trading. You pointed out the less than 80,000 deadweight tons, so that covers our minor bulk fleet going in and out of the U.S. And then our capes, there's also an exception that you're not charged port fees if you come to the U.S. in ballast. 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 empty. They usually pick up coal in either Baltimore or Norfolk, Hampton Roads area, and then leave full. That type of trade would be exempt as well. Just going back, we don't see impact at this point.

Poe Fratt (Analyst)

That's really helpful. The two parts of the fleet profile enhancement, buying newer tonnage, but also selling some of the older tonnage. Can you update us on sort of what the tone of the market is for selling some of the smaller older tonnage that you have?

John Wobensmith (CEO)

Yeah. I think it's fairly good right now. If you'd asked me a month ago, I would have a different answer. With USTR providing not just clarity, but what I would say is some sensible thoughts on it, people are buying and selling ships again. I would say it's a pretty liquid market on the older ships. I still believe that the market overall, there's an optimistic view, which is why you're seeing these older ships being bought.

Poe Fratt (Analyst)

Great. Thanks for your time, John.

John Wobensmith (CEO)

Thanks, Poe.

Operator (participant)

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.