The DryShips Earnings Anchor (DRYS)

DryShips Inc. (NASDAQ: DRYS) posted what some may take as mixed earnings despite the stock’s reaction in the after-hours session.  The headline figure looked disappointing at first with a report of $35.6 million net profit, or $0.12 in basic and diluted earnings on an EPS basis.  But the company noted that a loss of $39.3 million took earnings down by $0.15 per share tied to the valuation of interest rate swaps.  DryShips would have reported earnings at $74.9 million, or $0.27 EPS, outside of that.  The combined revenues from drilling and drybulk operations was down nearly $100 million from a year ago to $228.2 million.  Thomson Reuters had estimates pegged at $0.20 EPS and $215.55 million in revenues.

Drilling contracts revenue rose by almost $20 million, but its voyage revenues fell by almost $120 million.  The mixed nature of these earnings is that it just depends upon how much slack you think the company deserves on its swap gains and losses.  Had these come in differently would you cheer for the company’s great intuition?  If the answer is “no” and you just care about operations, then the beat is good enough.  They did beat on the revenue front.

CEO/Chairman George Economou made several comments about the quarter:

• “…both our drilling and drybulk units continued to perform at high utilization rates.”
• “…particularly pleased with the high utilization rates achieved by the Eirik Raude, which is drilling off Ghana at the Jubilee field for Tullow Oil.”
• “…Leiv Eiriksson is expected to complete its assignment with Shell in the North Sea during October and commence mobilization for drilling operations in the Black Sea under a 3-year contract for Petrobras.”
• “Most economic indicators for the world economy seem to indicate the end of the recession…”
• “While drybulk shipping demand is projected to remain strong for the coming years, the large orderbook remains a cause for concern, especially for 2010.”
• “Actual deliveries in the first nine months of 2009 were much smaller than were anticipated at the beginning of the year and offer some hope that cancellations and delays will alleviate the projected oversupply.”
• “drybulk fleet is now virtually fully fixed for the remainder of 2009 and 2010 and 77% fixed for 2011 at healthy levels…”
• “prepared to leverage the volatility in freight rates in the future through further vessel acquisitions.”

Frankly, with how this stock trades you could just as easily say, “thus it is good” as “thus it is not good enough.”  We’ll have to see how the reaction is after the conference call before making a pre-Tuesday judgment.  The good news for the DryShips bulls is that the stock is up 3.3% at $7.12 after the report.  Shares closed down almost 2% at $6.89 today after having an intra-day range of $6.78 to $7.38.

Jon C. Ogg