Zacks_Analysts' Blog : Overseas Shipholding Underperforms - Analyst Blog

Overseas Shipholding Group Inc. (OSG), a leading energy transportation company, reported mounting losses in the fourth quarter of 2010. Overseas Shipholding has a massive 70% spot exposure. The average spot rate of oil tanker fell 55% in the last quarter, which significantly eroded the company’s bottom-line.

Quarterly GAAP net loss was $55.3 million or a loss of $1.83 per share compared with a net loss of $23.2 million or a loss of 86 cents per share in the prior-year quarter. Fourth quarter 2010 adjusted (excluding special items) EPS was a loss of $1.96, significantly above the Zacks Consensus Estimate of a loss of $1.86.

Quarterly Shipping revenue was nearly $232 million, down 4.4% year over year. Fourth quarter Time Charter Equivalent (TCE) revenue was $183.2 million, down 10% year over year and well below the Zacks Consensus Estimate of $190 million. TCE revenue represents Shipping revenue less Voyage expenses.

Segment Wise Shipping Revenue

Quarterly Pool revenue was $54.8 million, down 29.8% year over year. Time and bareboat charter revenue was $71.6 million, down 4.5% year over year. Voyage charter revenue was $106.7 million, up 18% year over year.

TCE Revenue in Details

Quarterly TCE revenue for the crude oil segment was $72.64 million, down 5% year over year. This was mainly due to an adverse shift in the mix of spot and fixed charters. Product TCE revenue was $45.75 million, up 4% year over year. This was primarily due to an increase in 627 revenue days in MR class. Flag TCE revenue was $64.81 million, up 12% year over year.

Operating Expenses

Total operating expenses, in the fourth quarter of 2010, was $283 million, up 1.6% year over year. Voyage expenses increased 27.1% year over year. Vessel expense decreased 5.8% year over year. Charter hire expenses increased by 14.5% year over year. General & Administrative expense was down by 34% year over year. 

Cash Flow

During fiscal 2010, Overseas Shipholding consumed $27.7 million of cash from operations compared with a cash generation of $218.1 million in fiscal 2009. Free cash flow, in fiscal 2010 was a negative $449.1 million compared with a negative $377 million in fiscal 2009.

Liquidity

At the end of fiscal 2010, Overseas Shipholding had $273.7 million of cash & marketable securities compared with $524.7 million at the end of fiscal 2009. Total debt, at the end of fiscal 2010 was $1,986.2 million compared with $1,846.5 million at the end of fiscal 2009. At the end of fiscal 2010, debt-to-capitalization ratio was 0.52 compared with 0.49 at the end of fiscal 2009.

Operating Metrics

Quarterly total revenue days were 37,038 compared with 37,899 in the year-ago quarter. Within this, total Crude oil revenue days were 17,994 compared with 18,550 in the prior-year quarter. Total Refined Petroleum Products revenue days were 12,361 compared with 12,520 in the prior-year quarter. Total U.S. Flag revenue days were 6,130 compared with 6,464 in the year-ago quarter. Other revenue days were 553 compared with 365 in the year-ago quarter.

Our Recommendation

Overseas Shipholding mainly competes with Frontline Ltd. (FRO) and Teekay Corp. (TK). We maintain our long-term Neutral recommendation for Overseas Shipholding. Currently the stock holds a short-term Zacks #4 Rank (Sell). We believe this is primarily due to growing competition that resulted in lower spot rates and average revenue per days.