Maritime shipping company Genco (NYSE:GNK) reported Q3 CY2024 results beating Wall Street’s revenue expectations , with sales up 105% year on year to $99.33 million. Its non-GAAP profit of $0.41 per share was in line with analysts’ consensus estimates.
Revenue: $99.33 million vs analyst estimates of $73.59 million (35% beat)
Adjusted EPS: $0.41 vs analyst expectations of $0.41 (in line)
EBITDA: $36.92 million vs analyst estimates of $37.48 million (1.5% miss)
Gross Margin (GAAP): 46.6%, up from 44.7% in the same quarter last year
Operating Margin: 24.2%, up from -62.7% in the same quarter last year
EBITDA Margin: 37.2%, up from 30.1% in the same quarter last year
Free Cash Flow Margin: 30.9%, up from 25.8% in the same quarter last year
owned vessels: 42, up 1 year on year
Market Capitalization: $700.8 million
John C. Wobensmith, Chief Executive Officer, commented, “Execution of our value strategy was once again strong. We enhanced our dividend policy to increase cash distributions to shareholders, resulting in an 18% increase in our third quarter dividend over the prior quarter. Returning significant capital to shareholders remains a top priority for management and we have now declared 21 consecutive dividends, representing $6.315 per share, or ~40% of our current share price. Advancing our growth strategy also remains an important focus for management and subsequent to quarter’s end, we took delivery of another high specification Capesize vessel. Including this acquisition, we have now invested ~$285 million in fleet expansion and modernization since the implementation of our value strategy. Consistent with our stated objective, we are pleased to have reinvested proceeds from the sales of older, less fuel-efficient vessels into this high-quality Capesize vessel to further increase our earnings power and modernize our fleet.”
Company Overview
Headquartered in NYC, Genco (NYSE:GNK) is a shipping company that transports dry bulk cargo along worldwide maritime routes.
Marine Transportation
The growth of e-commerce and global trade continues to drive demand for shipping services, presenting opportunities for marine transportation companies. While ocean freight is more fuel efficient and therefore cheaper than its air and ground counterparts, it results in slower delivery times, presenting a trade off. To improve transit speeds, the industry continues to invest in digitization to optimize fleets and routes. However, marine transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins. Geopolitical tensions can also affect access to trade routes, and if certain countries are banned from using passageways like the Panama Canal, costs can spiral out of control.
Sales Growth
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Genco grew its sales at a mediocre 7.4% compounded annual growth rate. This shows it couldn’t expand in any major way, a tough starting point for our analysis.
Genco Total Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Genco’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 14.1% annually. Genco isn’t alone in its struggles as the Marine Transportation industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
Genco Year-On-Year Revenue Growth
We can better understand the company’s revenue dynamics by analyzing its number of owned vessels, which reached 42 in the latest quarter. Over the last two years, Genco’s owned vessels averaged 2.8% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen.
Genco owned vessels
This quarter, Genco reported magnificent year-on-year revenue growth of 105%, and its $99.33 million of revenue beat Wall Street’s estimates by 35%.
Looking ahead, sell-side analysts expect revenue to decline 12.7% over the next 12 months. Although this projection is better than its two-year trend it's tough to feel optimistic about a company facing demand difficulties.
Genco has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, Genco’s annual operating margin rose by 91.7 percentage points over the last five years, showing its efficiency has meaningfully improved.
Genco Operating Margin (GAAP)
In Q3, Genco generated an operating profit margin of 24.2%, up 86.9 percentage points year on year. The increase was solid, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.
Genco’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.
Genco Trailing 12-Month EPS (Non-GAAP)
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.
Sadly for Genco, its EPS declined by more than its revenue over the last two years, dropping 41.5%. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Diving into the nuances of Genco’s earnings can give us a better understanding of its performance. While we mentioned earlier that Genco’s operating margin improved this quarter, a two-year view shows its margin has declined by 23.1 percentage pointswhile its share count has grown 1.8%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.
Genco Diluted Shares Outstanding
In Q3, Genco reported EPS at $0.41, up from negative $0.09 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Genco’s full-year EPS of $1.73 to grow by 7.6%.
Key Takeaways from Genco’s Q3 Results
We were impressed by how significantly Genco blew past analysts’ revenue expectations this quarter. On the other hand, its EBITDA missed. Overall, this quarter was mixed. The stock remained flat at $16.83 immediately following the results.
Genco had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
