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GENCO SHIPPING & TRADING LTD 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Genco Shipping & Trading Limite

Filing date:

02/21/2025

TLDR:

Genco Shipping & Trading Limited reported a significant increase in net income for FY2024 due to strong drybulk market conditions. The company is focused on dividends, deleveraging, and accretive growth.

ELI5:

Genco, a shipping company, made a lot more money this year because shipping rates were high. They’re using the extra money to pay off debt and reward shareholders.

Accession #:

0001558370-25-001309

Published on

Analyst Summary

  • Voyage Revenues increased by 10.2% to $423.0 million.
  • Net Income increased significantly to $76.5 million from a loss of $12.4 million in 2023.
  • EBITDA increased significantly to $155.4 million from $59.7 million in 2023.
  • Total Debt decreased significantly to $82.2 million from $190.2 million.
  • Fleet Average TCE Rate increased to $19,107 from $14,766.

Opportunities and Risks

  • Opportunity: Strong Drybulk Market can drive higher TCE rates and profitability.
  • Opportunity: Value Strategy Execution through deleveraging and fleet growth can enhance shareholder value.
  • Opportunity: Fuel Efficiency Upgrades can reduce fuel consumption and emissions.
  • Opportunity: Strategic Fleet Management through vessel acquisitions and sales can optimize fleet composition.
  • Risk: Cyclicality of the Drybulk Market subjects freight rates to significant fluctuations.
  • Risk: Geopolitical Risks can disrupt operations and increase costs.
  • Risk: Environmental Regulations require significant capital expenditures.
  • Risk: Defaults by charterers could adversely affect revenue.
  • Risk: Floating rate debt exposes the company to interest rate fluctuations.
  • Risk: Cybersecurity Threats can disrupt IT infrastructure.

Potential Implications

Company Performance

  • Continued strong performance is dependent on favorable drybulk market conditions.
  • Successful execution of the value strategy will be crucial for long-term growth.
  • Effective management of operating expenses is necessary to maintain profitability.

Stock Price

  • Positive earnings results could lead to an increase in stock price.
  • Market volatility and geopolitical risks could negatively impact stock price.
  • Dividend payments may attract income-seeking investors.

SEC Filing Report: Genco Shipping & Trading Limited (GNK) 10-K for FY2024

Executive Summary

This report analyzes Genco Shipping & Trading Limited’s 10-K filing for the fiscal year ended December 31, 2024. Genco reported a significant increase in net income compared to the previous year, driven by higher TCE rates in a strong drybulk market. The company continues to execute its value strategy, focusing on dividends, deleveraging, and accretive growth. However, the cyclical nature of the drybulk shipping industry and geopolitical risks remain key concerns. Overall, a cautious “Hold” rating is warranted, pending further observation of market conditions and the company’s ability to sustain its performance.

Company Overview

Genco Shipping & Trading Limited (GNK) is a drybulk ship owning company transporting iron ore, coal, grain, and other drybulk cargoes worldwide. As of December 31, 2024, Genco’s fleet consisted of 42 vessels, including Capesize, Ultramax, and Supramax carriers. The company employs a commercial strategy that combines short-term spot market employment with longer-term fixed-rate coverage. Genco’s value strategy focuses on dividends, financial deleveraging, and accretive fleet growth.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights the strong drybulk market in 2024, particularly the Capesize sector, driven by increased cargo flows and demand from China. Geopolitical factors, including attacks on vessels in the Red Sea, also contributed to market dynamics. Management expresses commitment to reducing the company’s carbon footprint and complying with environmental regulations. The MD&A narrative aligns with the reported financial results, emphasizing the positive impact of market conditions on profitability.

Financial Statement Analysis

Income Statement

  • Voyage Revenues: Increased by 10.2% to $423.0 million, reflecting higher TCE rates.
  • Net Income: Significant increase to $76.5 million compared to a loss of $12.4 million in 2023.
  • EBITDA: Increased significantly to $155.4 million from $59.7 million in 2023.

Key Ratios

Ratio 2024 2023 Trend
Fleet Average TCE Rate $19,107 $14,766 Positive
Fleet Utilization 96.8% 97.3% Slightly Negative
Daily Vessel Operating Expenses $6,440 $6,017 Negative

Balance Sheet

  • Total Assets: Decreased to $1.06 billion from $1.14 billion, primarily due to vessel sales.
  • Total Debt: Decreased significantly to $82.2 million from $190.2 million, reflecting the company’s deleveraging efforts.
  • Total Equity: Increased to $928.2 million from $914.6 million.

Cash Flow Statement

  • Net Cash from Operations: Increased to $126.8 million from $91.8 million, driven by higher earnings.
  • Net Cash Used in Financing: Increased significantly to $177.5 million from $17.4 million, primarily due to debt repayments and dividend payments.

Risk and Opportunity Assessment

Risks

  • Cyclicality of the Drybulk Market: Freight rates are subject to significant fluctuations based on supply and demand.
  • Geopolitical Risks: Acts of war, terrorism, and piracy, particularly in regions like the Red Sea, can disrupt operations and increase costs.
  • Environmental Regulations: Compliance with evolving environmental regulations, such as IMO 2023, requires significant capital expenditures.
  • Creditworthiness of Charterers: Defaults by charterers could adversely affect revenue.
  • Interest Rate Risk: Floating rate debt exposes the company to interest rate fluctuations.
  • Cybersecurity Threats: Potential disruptions to IT infrastructure.

Opportunities

  • Strong Drybulk Market: Favorable market conditions can drive higher TCE rates and profitability.
  • Value Strategy Execution: Continued deleveraging and accretive fleet growth can enhance shareholder value.
  • Fuel Efficiency Upgrades: Investments in energy-saving devices can reduce fuel consumption and emissions.
  • Strategic Fleet Management: Opportunistic vessel acquisitions and sales can optimize fleet composition.

Uncommon Metrics & Red Flags

  • Fleet Utilization: While high, a slight decrease suggests potential inefficiencies or off-hire days.
  • Daily Vessel Operating Expenses: Increase in DVOE warrants monitoring to ensure cost control.
  • Impairment of Vessel Assets: Continued impairment charges, although lower than the previous year, indicate potential overvaluation of certain vessels.

Conclusion & Actionable Insights

Genco Shipping & Trading Limited demonstrated strong financial performance in 2024, benefiting from favorable drybulk market conditions. The company’s value strategy appears to be yielding positive results, with significant debt reduction and dividend payments. However, the inherent risks of the shipping industry, including market volatility and geopolitical uncertainties, necessitate a cautious approach.

Overall Assessment: Hold

Recommendations:

  • Monitor Market Conditions: Closely track drybulk freight rates and global economic indicators to anticipate potential downturns.
  • Manage Operating Expenses: Focus on cost control to mitigate the impact of rising vessel operating expenses.
  • Assess Geopolitical Risks: Develop contingency plans to address potential disruptions from geopolitical events.
  • Evaluate Fleet Composition: Continue to strategically manage the fleet through opportunistic acquisitions and sales.

Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Ratio/Metric: Voyage Revenues – Voyage Expenses / Voyage Revenues = (423,016 – 126,960) / 423,016 = 70.0%
    • Trend: (383,825 – 142,971) / 383,825 = 62.7%. Percentage Change: (70.0% – 62.7%) / 62.7% = 11.6%
    • Industry: The average gross profit margin for the shipping industry typically ranges from 20% to 50%, but can vary widely based on the type of shipping (e.g., container, dry bulk, tankers) and market conditions. Genco’s 70% is above average.
  • Operating Profit Margin:

    • Ratio/Metric: Operating Income / Total Revenues = 87,049 / 423,016 = 20.6%
    • Trend: (-5,847) / 383,825 = -1.5%. Percentage Change: (20.6% – (-1.5%)) / (-1.5%) = -1473.3%
    • Industry: The operating profit margin for the shipping industry can range from 5% to 20%. Genco’s 20.6% is at the higher end.
  • Net Profit Margin:

    • Ratio/Metric: Net Income / Total Revenues = 76,496 / 423,016 = 18.1%
    • Trend: (-12,356) / 383,825 = -3.2%. Percentage Change: (18.1% – (-3.2%)) / (-3.2%) = -665.6%
    • Industry: The net profit margin for the shipping industry can range from 2% to 10%. Genco’s 18.1% is above average.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Income / Total Assets = 76,496 / 1,056,602 = 7.2%
    • Trend: (-12,356) / 1,141,902 = -1.1%. Percentage Change: (7.2% – (-1.1%)) / (-1.1%) = -754.5%
    • Industry: The ROA for the shipping industry typically ranges from 1% to 5%. Genco’s 7.2% is above average.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Income / Total Equity = 76,496 / 928,228 = 8.2%
    • Trend: (-12,356) / 914,646 = -1.4%. Percentage Change: (8.2% – (-1.4%)) / (-1.4%) = -685.7%
    • Industry: The ROE for the shipping industry typically ranges from 3% to 8%. Genco’s 8.2% is at the higher end.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Basic EPS = 1.77, Diluted EPS = 1.75
    • Trend: Basic EPS: (0.30), Diluted EPS: (0.30). Percentage Change: Basic EPS: (1.77 – (-0.30)) / (-0.30) = -690.0%, Diluted EPS: (1.75 – (-0.30)) / (-0.30) = -683.3%
    • Industry: EPS varies significantly.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Current Assets / Current Liabilities = 97,990 / 40,660 = 2.41
    • Trend: 157,272 / 35,286 = 4.46. Percentage Change: (2.41 – 4.46) / 4.46 = -45.9%
    • Industry: A current ratio of 1.0 to 2.0 is generally considered healthy. Genco’s 2.41 is healthy.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Current Assets – Inventories) / Current Liabilities = (97,990 – 22,234) / 40,660 = 1.86
    • Trend: (157,272 – 26,749) / 35,286 = 3.70. Percentage Change: (1.86 – 3.70) / 3.70 = -49.7%
    • Industry: A quick ratio above 1.0 is generally considered good. Genco’s 1.86 is good.
  • Cash Ratio:

    • Ratio/Metric: Cash and Cash Equivalents / Current Liabilities = 43,690 / 40,660 = 1.07
    • Trend: 46,542 / 35,286 = 1.32. Percentage Change: (1.07 – 1.32) / 1.32 = -18.9%
    • Industry: A cash ratio of 0.5 to 1 is considered adequate. Genco’s 1.07 is adequate.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Debt / Total Equity = 90,000 / 928,228 = 0.10
    • Trend: 200,000 / 914,646 = 0.22. Percentage Change: (0.10 – 0.22) / 0.22 = -54.5%
    • Industry: A debt-to-equity ratio of 1 to 1.5 is considered normal. Genco’s 0.10 is low.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Debt / Total Assets = 90,000 / 1,056,602 = 0.09
    • Trend: 200,000 / 1,141,902 = 0.18. Percentage Change: (0.09 – 0.18) / 0.18 = -50.0%
    • Industry: A debt-to-assets ratio below 0.5 is considered good. Genco’s 0.09 is good.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: Operating Income / Interest Expense = 87,049 / 13,297 = 6.55
    • Trend: (-5,847) / 8,780 = -0.67. Percentage Change: (6.55 – (-0.67)) / (-0.67) = -1077.6%
    • Industry: An interest coverage ratio above 1.5 is considered safe. Genco’s 6.55 is safe.

Activity/Efficiency

  • Inventory Turnover:

    • Ratio/Metric: Voyage Expenses / Inventories = 126,960 / 22,234 = 5.71
    • Trend: 142,971 / 26,749 = 5.35. Percentage Change: (5.71 – 5.35) / 5.35 = 6.7%
    • Industry: Inventory turnover varies.
  • Days Sales Outstanding (DSO):

    • Ratio/Metric: (Due from Charterers / Voyage Revenues) * 365 = (21,376 / 423,016) * 365 = 18.4 days
    • Trend: (17,815 / 383,825) * 365 = 16.9 days. Percentage Change: (18.4 – 16.9) / 16.9 = 8.9%
    • Industry: DSO varies.
  • Days Payable Outstanding (DPO):

    • Ratio/Metric: (Accounts Payable and Accrued Expenses / Voyage Expenses) * 365 = (34,492 / 126,960) * 365 = 99.2 days
    • Trend: (24,245 / 142,971) * 365 = 61.8 days. Percentage Change: (99.2 – 61.8) / 61.8 = 60.5%
    • Industry: DPO varies.
  • Asset Turnover:

    • Ratio/Metric: Total Revenues / Total Assets = 423,016 / 1,056,602 = 0.40
    • Trend: 383,825 / 1,141,902 = 0.34. Percentage Change: (0.40 – 0.34) / 0.34 = 17.6%
    • Industry: Asset turnover varies.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Market Cap / Net Income = (43.05M * 14.15) / 76.496M = 7.95
    • Industry: The P/E ratio for the shipping industry varies.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Market Cap / Total Equity = (43.05M * 14.15) / 928.228M = 0.66
    • Industry: The P/B ratio for the shipping industry varies.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Total Revenues = (43.05M * 14.15) / 423.016M = 1.44
    • Industry: The P/S ratio for the shipping industry varies.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA = ((43.05M * 14.15) + 90M – 44.005M) / 155.386M = 4.24
    • Industry: The EV/EBITDA ratio for the shipping industry varies.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = (423,016 – 383,825) / 383,825 = 10.2%
  • Net Income Growth:

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = (76,496 – (-12,356)) / (-12,356) = -719.1%
  • EPS Growth:

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = (1.77 – (-0.30)) / (-0.30) = -690.0%

Other Relevant Metrics

  • EBITDA:

    • Description: Earnings Before Interest, Taxes, Depreciation, and Amortization. A non-GAAP measure used by management and investors to assess operating performance.
    • Calculation: Net income (loss) + Net interest expense + Income tax expense + Depreciation and amortization.
    • Significance: Provides a view of performance before considering capital structure and accounting decisions.
    • Trend: Increased from $59.7 million in 2023 to $155.4 million in 2024, a 160.2% increase.
    • Critique: Non-GAAP, so it should be viewed in conjunction with GAAP measures. The adjustments seem reasonable for a capital-intensive industry.

Commentary

Genco Shipping & Trading Limited demonstrated a significant turnaround in 2024, achieving a substantial increase in voyage revenues and a return to profitability. The company’s profitability metrics, including gross, operating, and net profit margins, improved considerably compared to the previous year. This improvement was driven by higher TCE rates across all vessel classes and a net gain on the sale of vessels. While liquidity remains strong, the current and quick ratios have decreased, and the company’s debt-to-equity ratio has decreased, indicating a stronger financial position.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️