Seaspan Corporation Continues to Grow Despite the Storm

By Markets Fool.com

Image source: Richard Eriksson via Flickr.

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The slowing of the Chinese economy is creating a lot of turbulence within the global marketplace. There has been a noticeable slowdown in goods being shipped by container, which has had a major impact on earnings for container leasing companies. Seaspan , however, has sailed right through this storm because it leases its container shipping vessels under long-term contracts, thereby insulating it from the economic turbulence surrounding it. Instead, Seaspan's revenue and earnings continue to grow thanks to new additions to its fleet.

Seaspan Corporation results: The raw numbers

Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)

Revenue

$218.5 million

$189.4 million

15.3%

Cash Available for Distribution

$115.8 million

$116.5 million

-0.6%

Normalized EPS

$0.35

$0.27

29.6%

Data source: Seaspan Corporation.

What happened with Seaspan Corporation this quarter?
New vessels drive growth for Seaspan:

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  • Seaspan grew its operating fleet from 77 to 85 over the course of 2015, including one new vessel during the fourth quarter, which drove revenue growth. These additional vessels grew the company's operating days by 11% year over year to 7,279, which is how revenue from time charters are determined.
  • Vessel utilization was a bit weaker during the quarter at 97.9%, down from 98.7% in the year-ago quarter. This was due to 48 operating days of scheduled dry dockings and 23 operating days of unscheduled off-hire.
  • Ship operating expense increased by 19.6% to $50.5 million. This is partially due to the increase in vessels as well as higher repair and maintenance expenses as its fleet ages.
  • The decline in cash available for distribution is due to a big shift in the fair value of financial instruments, which are the company's interest rate swaps and foreign currency hedging contracts. In the fourth quarter of 2014, the company received a $39.6 million benefit from these financial instruments, but it recorded a $10.5 million loss in the fourth quarter of 2015. That more than offset the positive year-over-year changes to cash available for distributions.

What management had to say
As CEO Gerry Wang said about the results:

During 2015, we achieved an important milestone by growing Seaspan's operating and managed fleet to over 100 vessels, complementing our successful execution of the Company's stable and predictable business model. With the delivery of two 10000 TEU class and six 14000 TEU class state-of-the-art containerships in 2015, Seaspan achieved strong revenue and earnings-per-share growth for both the year and fourth quarter. We also continued to enter into attractive fixed-rate long-term contracts with high creditworthy counterparties, ending the year with future contracted revenues of nearly $6 billion.

There are two keys to Seaspan's ability to grow its earnings. First, those earnings are backed by the fixed-rate, long-term contracts it signs for its vessels, which protects it from the turbulent global economy. Second, it continues to add new vessels to its fleet, which are also signed to fixed-rate, long-term contracts. Because of this, it has built a robust revenue backlog that now totals almost $6 billion. That will keep its earnings flowing and growing for years to come.

Looking forward
Despite new vessels expected to go into service this year, Seaspan isn't planning on boosting its dividend in 2016. Instead, its plan is to maintain its current dividend, which is a deviation from the dividend growth it has delivered in the past. In lieu of growing the dividend, the company is planning to return capital to investors via share repurchases, both common and preferred shares. In fact, last year the board of directors authorized the repurchase of up to $50 million of its common stock and up to $200 million of its preferred stock.

The article Seaspan Corporation Continues to Grow Despite the Storm originally appeared on Fool.com.

Matt DiLallo owns shares of Seaspan. The Motley Fool recommends Seaspan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.