Seaspan Corporation (NYSE: SSW) continues to navigate the rough seas of a weak shipping market, which weighed on its second-quarter results versus the year-ago period. That said, the results showed some improvement from the first quarter thanks to higher vessel utilization and lower costs. Furthermore, the company continued to strengthen its balance sheet, which gives it more financial flexibility to capture opportunities that might arise during the industry's current rough patch.
Financial results aside, the big story this quarter is that co-founder and CEO Gerry Wang will retire by the end of the year. That leaves the company with a bit of uncertainty until it finds a replacement.
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Seaspan Corporation results: The raw numbers
What happened with Seaspan this quarter?
A weak shipping market weighed on results again:
- While revenue slipped versus the second quarter of last year, it was within the company's $203 million to $207 million guidance range. Further, it improved from last quarter, when revenue was $201.3 million. The main culprit driving the year-over-year decline was a decrease in the rates for vessels under short-term charters, which the company partially offset with new ships added to the fleet over the past year.
- Vessel utilization was strong during the quarter at 98.2%. That's not only an improvement from 98.1% in the year-ago quarter but well above last quarter's 91.6%. The utilization rate increased sequentially as the company secured new short-term charters for the three vessels that it had leased under long-term agreements with the bankrupt South Korean shipper Hanjin.
- While earnings followed revenue lower versus last year, the company's profitability improved from last quarter, when normalized net earnings were $31.8 million, or $0.15 per share. Aside from the sequential uptick in revenue, Seaspan also kept a lid on costs. Ship operating expenses, for example, came in at $44.8 million, which was below its $46 million to $49 million guidance range.
- Cash available for distribution to common shareholders was $95 million during the quarter, down from $111.2 million in the year-ago quarter. However, it's up sharply from last quarter, when the company generated $60.3 million in cash.
- Seaspan completed several initiatives to shore up its balance sheet during the quarter. First, it closed on a $144 million sale-leaseback transaction for the recently delivered container vessel YM Wind. Second, it renewed its revolving credit facility, which has total commitments of $120 million. Finally, it issued $33.9 million of stock under its at-the-market offering. As a result of these initiatives, the company had $305.6 million of cash on its balance sheet, up from $295.7 million at the end of last quarter, while debt fell from $3.3 billion to $3.16 billion.
What management had to say
CEO Gerry Wang pointed out the company's efforts to strengthen its financial position during the second quarter:
Seaspan continues to make progress on improving its financial performance and balance sheet. Among the highlights of the quarter is that vessel utilization was up while costs were down, which puts the company in the position to deliver higher earnings when shipping rates rise. In addition, the company meaningfully reduced leverage during the quarter, which gives it more flexibility to take advantage of opportunities to create value for investors.
While Seaspan's financial results appear to be turning in the right direction, its leadership situation took an interesting turn. Back in June the company announced that it had extended the deadline for discussions with co-founder and CEO Gerry Wang on a new employment agreement and compensation package while the two sides worked out their differences. However, instead of securing a new employment agreement, Wang has chosen to retire by the end of the year, or earlier if the company finds a new CEO sooner. This leadership transition casts some uncertainty on the future direction of Seaspan, given that Wang has led the company for the past two decades.
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