Can We Expect Any Good News From DryShips Earnings?

After markets close Tuesday, dry bulk carrier DryShips Inc. (NASDAQ: DRYS) is scheduled to release fourth-quarter 2015 results. Analysts have all but ignored the company, leaving us with no estimates for earnings or revenues. That alone says a lot about DryShips and the dry bulk shipping business in general.

The yardstick for the industry is the Baltic Dry Index, which currently stands at 354, just above a five-year low of 290 posted in February. While the index is often thought to be a measure of the volume of shipping, it is in fact a measure of the price of shipping. Volumes, it turns out, are okay, but not growing. What’s wrong is capacity.

The market for dry bulk shipping is about 30% over capacity. In the high-flying days of 2007 and into 2008, shippers never thought that someone would take the punchbowl away. The Baltic Dry Index peaked at more than 11,000 in May of 2008. That should be enough to indicate how the mighty have fallen.

DryShips was one of the highest flyers in those days, but overcapacity and slipping demand for commodities like iron ore and other bulk cargoes has hammered the company lower, beginning with the financial crisis in the late summer of 2008. Financing dried up even as debt had soared from delivery of new vessels.
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Last month the company announced a one-for-25 reverse stock split effective March 11, 2016. The reverse split will cut the number of shares outstanding from more than 672 million to just under 27 million. DryShips narrowly averted a delisting last year by moving from the Nasdaq Global Select Market to the Nasdaq Capital Market.

So if analysts no longer care about DryShips, who does? We’d have to guess that day traders love this stock for its volatility and the opportunity it gives them to make a profit by taking advantage of that volatility. More than 6 million shares trade hands every day and more than 8.5 million have already changed hands in advance of the earnings announcement. What remains to be seen is whether the enthusiasm remains when shares trade at around $3.75 instead of $0.15.

Whatever DryShips reports Tuesday likely won’t have much impact beyond the traders who already trade the shares actively. The reverse-split is the driving force now, and how that will turn out is anyone’s guess.