Why the NMM’s Revenue Miss Might Be Positive Going Forward

Slight miss on consensus expectations

Navios Maritime Partners’ (NMM) results were a slight miss versus consensus expectations. The company reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $38.7 million, compared with market estimates of $43 million. This miss on EBITDA was driven by the top-line miss.

NMM’s revenue came in at $56.5 million versus market expectations of $59.4 million. This also resulted in an earnings per share (or EPS) miss for NMM. The company’s EPS came in at $0.13, below consensus estimates of $0.17.

Why the NMM’s Revenue Miss Might Be Positive Going Forward

Charter rates and revenues

Average charter rates in 2Q15 were $20,679 per day, which is 3% up year-over-year (or YoY). However, this increase was mitigated by the fewer number of operating days of 2,659 in 2Q15 as compared to 2,694 in 2Q14. The fewer number of operating days reflected approximately 140 drydock days during 2Q15.

Diana Shipping (DSX) reported time charter revenues of $38.6 million for 2Q15, a decline of 10.6% YoY, mainly due to low time charter rates. DryShips Inc. (DRYS) posted a much higher YoY loss of 36% on its dry bulk segment EBITDA for 2Q15 due to lower time charter equivalent rates. Safe Bulkers (SB) also reported 34% YoY loss on EBITDA. Scorpio Bulkers (SALT) reported a net loss of $138.6 million for 2Q15.

Navios Partners forms 2.9% of the Guggenheim Shipping ETF (SEA). The SPDR S&P 500 Trust ETF (SPY) represents the broader transportation industry.

Preemptive dry docking

Dry docking involves pulling ships out of the ocean for inspections, maintenance, or repairs. During 2Q15, NMM’s management decided to dry dock seven vessels. This was a strategic decision to benefit from the lower rates in the shipping cycle. This helped the company reduce the loss on revenues sustained when vessels are out of operation.

There was another important factor that resulted in management’s decision to bring forward the dry docking of vessels. The company has a five-year certificate that allows it to go without having the ballast water treatment capital expenditure. This regulatory requirement is effective next year and onward. Dry docking resulted in a loss of $2.8 million in revenues.

To benefit from the industry downturn and to avoid the capital expenditure on mandatory treatment plant effective next year, management plans to dry dock another seven vessels in 3Q15.

Navios Maritime Partners (NMM) entered into container segment to offset the downturn in the dry bulk industry. In the next part of this series, we’ll see how performance in this segment is progressing.