Star Bulk Carriers Corp
NASDAQ:SBLK
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Star Bulk Carriers Corp
Earnings Call Analysis
Q2-2024 Analysis
Star Bulk Carriers Corp
In the second quarter of 2024, Star Bulk Carriers reported a net income of $106 million, translating to an adjusted net income of $89 million or $0.81 per share. This performance indicates strong operational efficiency and market resilience in a fluctuating economic climate. The company also reported an adjusted EBITDA of $153 million. Consistent with its shareholder-friendly policies, Star Bulk declared a dividend of $0.70 per share, payable on September 6, 2024, marking a significant return to shareholders.
Star Bulk's total liquidity as of the end of the second quarter stood at $516 million against a total debt of $1.38 billion. The company began the quarter with $373 million in cash and generated positive operating cash flow of $143 million. The successful integration of Eagle Bulk contributed an additional $104.3 million, showcasing the effectiveness of the merger strategy.
The average time charter equivalent (TCE) for the quarter was reported at $19,268 per vessel per day, with operating expenses averaging $5,319 per vessel. The net cash G&A expenses were $1,371 per vessel per day. This resulted in a healthy TCE less OpEx and cash G&A of approximately $12,578 per vessel per day, underlining Star Bulk's control over its operational costs. The integration with Eagle Bulk is expected to yield significant cost synergies, targeting a reduction of $600 per vessel per day by Q2 2025.
In an effort to strengthen its market position, Star Bulk has successfully completed the integration of Eagle Bulk, enhancing its trading capabilities and fleet management. The merger enables the company to control the second-largest fleet of Ultramax and Supramax vessels globally. Additionally, Star Bulk has disposed of older vessels and announced the construction of five new Kamsarmax vessels, aiming to modernize its fleet and improve operational efficiency.
Looking forward, the outlook for the dry bulk shipping industry remains positive. Star Bulk anticipates a decent market for the next six months, backed by resilient demand for iron ore, coal, and grains. The International Monetary Fund (IMF) projects global GDP growth of 3.2% for 2024, with significant contributions expected from China. Furthermore, strong exports and rising commodity prices should bolster shipping demand.
Star Bulk has made substantial strides in environmental, social, and governance (ESG) initiatives. Despite a 4% increase in Scope 1 greenhouse gas emissions, the company has successfully improved its carbon intensity index (CII) by approximately 5.7% compared to 2022. Star Bulk is preparing for compliance with impending environmental regulations and is committed to investing in technologies that enhance its eco-efficiency.
Since 2021, Star Bulk has returned over $1.25 billion to shareholders through dividends and approximately $420 million through share buybacks. The company has reduced its net debt per vessel from $11 million to $6 million, representing a 34% reduction in leverage since 2021. Star Bulk's approach to capital allocation emphasizes shareholder returns while maintaining financial stability.
In conclusion, Star Bulk Carriers is positioned strongly within the dry bulk sector with effective management strategies, growing market opportunities, and a robust balance sheet. With a continued focus on operational efficiency and shareholder returns, coupled with strategic fleet enhancements, the company is well-prepared to navigate future market conditions. Investors can look forward to solid dividends and potential growth through prudent capital management and expanding operational capabilities.
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Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk Carriers Conference Call on the Second Quarter 2024 Financial Results. We have with us Mr. Petros Pappas, Chief Executive Officer; Mr. Hamish Norton President, Mr. Simos Spyrou and Mr. Christos Begleris, co-Chief Financial Officers; Mr. Nicos Rescos, Chief Operating Officer; and Mr. Charis Plakantonaki, Chief Strategy Officer of the company. At this time, all participants listen on the mode. [Operator Instructions] I must advise you that this conference may be recorded today. We now pass the floor to one of your speakers today, Mr. Spyrou. Please go ahead, sir.
Thank you, operator. I'm Simo Spyrou Co-Chief Financial Officer of Star Bulk Carriers, and I would like to welcome you to our conference call regarding our financial results for the second quarter of 2024. Before we begin, I kindly ask you to take a moment to read the safe harbor statement on Slide #2 of our presentation.
In today's presentation, we will go through our second quarter results, cash evolution during the quarter, actions taken to create value for our shareholders an update on our Eagle Bulk integration, vessel operations, fleet update, the latest on the ESG front and our views on industry fundamentals before we open up for questions.
Let us now turn to Slide #3 of the presentation for a summary of our second quarter 2024 highlights. For the second quarter 2024, the company reported the following: Net income amounted to $106 million with adjusted net income of $89 million or $0.81 per share adjusted earnings. Adjusted EBITDA was at $153 million for the quarter. For the second quarter, as per our existing dividend policy, we declared a dividend per share of $0.70, payable on September 6, 2024. Since 2021, dividend distributions are over $1.25 billion or $12.20 per share and share buybacks of over $420 million. Our total liquidity today stands strong at $516 million. Meanwhile, our total debt stands at $ 1.38 billion.
On the top right of the page, you will see our daily figures per vessel for the quarter. Our time charter equivalent rate was $19,268 per vessel per day. Our combined daily OpEx and net cash G&A expenses per vessel per day amounted to $6,690. Therefore, our TCE less OpEx and less cash G&A is around $12,578 per day per vessel. The Eagle Bulk transaction was completed on April 9, and the Eagle Bulk vessels contributed 83 days each during the second quarter. Cash received from the Eagle Bulk merger amounted to $104.3 million.
Eagle Bulks convertible notes, which matured on August 1, 2024, converted to 5,971290 shares of total common stock. 1,341,584 shares of Starbucks have been loaned out as part of a share lending agreement with Jeffries Capital Services in connection with Eagle Bulk convertible notes and have been returned to Star Bulk and canceled. The fully diluted share count as of today stands at 118,825,307 shares. Currently, we had 159 vessels on a fully delivered basis, including the 5 newbuilding Kamsarmax vessels we have announced. During 2024, we have sold 10 vessels for a total gross proceeds of $180 million. Two of these vessels, namely start Iris and Star Hydrus are expected to be delivered during the third quarter to their new owners.
As of June 30, 2024, the equity left aside from vessel sales and the ATM after the share buybacks and $18 million of newbuilding installments stands at $74 million. During the third quarter, the above equity will increase by $24 million from the sale of the 2 sold vessels and will be reduced by $ 8 million of new building down payments.
Slide #4 graphically illustrates the changes in the company's cash balance during the second quarter. We started the quarter with $373 million in cash, out of which $104 million were received from the Eagle Bulk transaction. We generated positive cash flow from operating activities of $143 million. After including debt proceeds and repayments, CapEx payments for ESD and ballast water treatment installations and the first quarter dividend payment, we are at a cash balance of $486 million at the end of the second quarter.
Slide #5 provides an overview of the company's capital allocation policy over the last 3 years and the various levels we have used to create shareholder value. On the top left, we show our net debt evolution. Since 2021, we have reduced leverage in the company by approximately 34%. Our average net debt per vessel has decreased from $11 million to $6 million per vessel. Starbucks has been creating value for its shareholders through consecutive fleet buyouts by issuing shares at or above NAV. Over the same period, we have declared consecutive quarterly dividends of over $1.25 billion. We have taken advantage of historically elevated S&P values to sell some of our older and less efficient vessels using equity proceeds to buy back our shares at attractive valuations.
Since 2022, we have bought back 423 million worth of Star Bulks stock. Combining all of the above, we see that we have focused on returning capital to our shareholders, while at the same time, deleveraging the balance sheet and buying back shares when there are opportunities to do so accretively. In total, since 2021, we have taken actions of $ 2.3 billion to create value for our shareholders.
I will now pass the floor to our COO, Nicos Rescos, for an update on Eagle Bulk transaction, integration and our operational performance.
Thank you, Simos. Slide 6 illustrates a summary of the go back transaction integration. The integration with Eagle Bulk is underway. And upon completion, it will allow us to leverage our strong global presence of the combined entity with offices in Singapore, the U.S., Greece, Denmark and Cyprus. The respective Singapore offices operations have merged into one entity and continue as a commercial and technical management hub, aligning ship management practices covering the Asia Pacific.
The Stamford office, continuous operations, both on commercial and technical management covered the Atlantic in the U.S. Together with the Athens corporate headquarters in Europe, we maintained presence in Copenhagen for chartering operations currently Atlantic in the continent. We are nearing completion of the integration of our commercial teams for the Supramax and Ultramax vessels, managing the second largest Ultramax Supramax fleet globally, combining our trading capabilities aiming to improve our TCE performance.
We are further rebalancing our sector employment strategy to include both the business and optimizing our fleet distribution between the Atlantic and the Pacific Basin. We have introduced our planned maintenance, procurement and cost control processes across Singapore and Stamford offices and towards realizing operational and cost reduction synergies. Significant synergies are expected from the centralization of the procurement of all stores, spare parts, bunkers and lubricants for the combined fleet.
Fleet is gradually taken in-house with the expected cost reduction of $600 per vessel per day to be realized by Q2 2025. Dry docks of 12 ex Eagle Bulk vessels are planned following the merger and benefiting from Star Bulk competitive pricing agreements with service providers and shipyards globally. Marine safety, quality and technical maintenance standards, processes, policies and systems are being applied across the combined fleet, aligning with the Star Bulk flagship safety score and [indiscernible] control performance.
Please turn to Slide 7, where we provide an operational update. Operating expenses was at $5,319 for Q2 2024. Net cash G&A expenses at $1,371 per vessel per day for the same period. In addition, we continue to rate at the top amongst our listed peers in terms of rides safety score.
Slide 8 provides a fleet update and some guidance around of use dry dock and the relevant total of high days. On the top right of the page, we provide our expected drive of expense schedule, which will remain in 2024 is estimated at $34.8 million for the dry docking of 38 vessels. In total, we expect to have approximately 966 off-hire days for the same period.
On the bottom of the page, we have our CapEx schedule, illustrating a new building CapEx and investment energy efficiency upgrade expenses with 100% of our fleet by now being ballast wood treatment fitted. Based on our latest construction schedule, our new building investors are expected to be delivered in Q4 2025, Q2 and Q3 2026.
In line with the XI and CII regulations, we continue investing in upgrading our fleet with the latest operational technologies available, aimed in improving our fuel consumption and reducing our environmental footprint, further enhancing the commercial attractiveness of the Star Bulk fleet. Regarding our energy saving devices program, we have completed 36 installations with 11 more vessels planned for retrofit by the end of the year. The above numbers are based on current estimates around dry dock, retrofit planning, vessel employment and yard capacity.
Please turn to Slide 9 for an update on our fleet sales. On the vessel sales front, we'll continue disposing of vessels opportunistically at historically attractive levels, having agreed during Q2 to sell 2 vessels for total gross proceeds of $30 million, reducing our average fleet age and improving overall fleet efficiency. Following the rollover of the Go back existing chartering contracts, we now have a total of 10 chartering vessels.
We have had 5 firm ship building contracts with Qingdao shipyard with the construction of 82,000 Kamsarmax ship building vessels and with the first vessel delivering during Q4 next year. Considering the aforementioned change in our fleet mix, we operate one of the largest dry bulk fleet amongst U.S. and European listed peers with 159 vessels on a fully delivered basis and an average age of 11.3 years.
I will now pass the floor to our Chief Strategy Officer, Charis Plakantonaki for our ESG update. Thank you, Nicos.
Please turn to Slide 10, where we highlight our continued leadership on the ESG front. During the second quarter of 2024, we completed the measurement of the company's 2023 greenhouse emissions. Scope 1 greenhouse gas emissions were increased by approximately 4%, while the respective CII of our fleet reduced by approximately 5.7% compared to 2022. Scope 3 emissions measured for consecutive years were approximately 9.5% lower than the previous year. This performance will be top in our new year report during the third quarter of 2024.
Moving forward, we are working on setting Science-Based Targets for the company to have clearly define the box to further use our fixed carbon footprint in line with the Paris agreement rules
On the regulatory front, we are preparing for compliance with Fuel EU Maritime regulation coming into force on 1 January 2025, Mediterranean Sea Emission Control Area for sulfur oxides in particular matter, taking effect from 1, May 2025.
The gap analysis related to the used corporate sensibility reporting directive is underway to identify and address different is to the directives and the company's ESG reporting processes. In July 2024, Star Bulk systems both in the office and on the vessels were affected by the Crowd Strike worldwide incident caused by bug during antivirus update, immediate action by the company restored systems in the office few hours later and on the vessels 1-2 days later.
On the society front, the employment of female cadets on our vessels continue along the deployment of Starlink on board and the implementation of the CyberOwl technology with monitors vessel systems performance and security.
Star Bulk was awarded sustainable development in the Maritime industry Credit awards, recognizing the company's continuous efforts lead by example, in sustainable development in the shipping industry.
I will now pass the floor to our CEO, Petros Pappas for market tactics and [indiscernible]
Thank you, Charis. Please turn to Slide 11 for a brief update of supply. During the first half of 2024, a total of 18.8 million deadweight was delivered and 2.1 million deadweight was sent to demolition for a net fleet growth of 16.7 million deadweight or 1.7% year-to-date and 3% over the last 12 months.
Uncertainty on future clean propulsion, high shipbuilding costs and limited CPR capacity until late 2026 due to increased competition from other vessel types have helped keep new orders under relative control. The order book has slightly increased during the last 2 years but still stands at a comparatively low level of 9.8% of the fleet. Furthermore, vessels above 20 and 15 years of age stand at 9% and 21.9% of the fleet, respectively, while scrap prices have stabilized at elevated levels and should induce stimulation of overage and energy inefficient tonnage during seasonal downturns over the next years. The average speed of the dry bulk fleet has stabilized at lower levels between 11.1 and 11.2 knots during the last 6 months due to inflated bunker costs and environmental regulations, including Xi and CII that increasingly incentivizes slow steaming and retrofits and should moderate supply over the next several years.
During the first half of 2024, global port congestion has fully normalized on all sizes, following a strong reduction over the last 2 years that gradually deflated available supply by approximately 6%. Recent trends of global Supramax congestion as well as dry bulk tonnage and Chinese ports indicate that there is a high pliability for congestion to increase year-over-year during the second half of 2024, with a positive effect on the supply and demand balance.
However, rising tensions in the Red sea since late 2023 continue to cause strong inefficiencies for trade despite the partial recovery of dry bulk crossings in the Panama Canal that are expected to fully recover by the end of the year. As a result of the above trends, normal fleet growth is unlikely to exceed 3% per annum over the next couple of years, even under the assumption that the Malaysian activity remains at current low levels.
Let me now turn to Slide 12 for a brief update of demand. According to [indiscernible], total dry bulk trade during 2024 and 2025 is projected to expand by 2.6% and 0.7% in tons and by 4.4% and 0.5% in ton miles, respectively. During the first half of 2024, total dry back volumes increased by 5.8% year-on-year on the back of record iron ore, coal and minor bulk exports while on [indiscernible] increased at a faster pace, supported by Canal and geopolitical inefficiencies and strong exports from Latin America, West Africa and the U.S.
The IMF is projecting global GDP growth of 3.2% for 2024 and 3.3% for 2025 at the same pace as in 2023 and upgraded its forecast for China to 5% and 4.5%, respectively. Chinese GDP increased by 4.7% in Q2, missing initial expectations due to the striving property market and a slowdown of household spending. Nevertheless, recent comments from government officials highlighted that the company has the ability and confidence to achieve its full year growth target of around 5%, supported by strength in infrastructure, manufacturing and exports, while demand for dry bulk commodities remained strong as import volumes increased by 7.5% year-over-year during the first half of 2024.
Table demand from the rest of the world is experiencing a recovery over the last 3 quarters that is expected to continue amid lower commodity prices and expectations of easing monetary policy. During the first half, imports were up by 4.3% year-over-year, with the increase coming mainly from India, the Middle East and Southeast Asia. Meanwhile, Western economies are also moving higher following 2 years of contraction and geopolitical-related disruptions.
Iron ore trade is expected to expand by 3.1% in tons and by 5.6% in ton miles during 2024. China state production declined by 2.2% year-over-year during the first half, while domestic production in iron ore increased by 15.3% and 6.1%, respectively, increasing port supply by approximately 30 million tons versus last year. We connected consumption as for China steel majors to export excess output and has prompted some economies to raise tariffs as a response. On the other hand, stable production from the rest of the world has been on a strong upward trend since September and increased by 4.4% during the first half, driven by strong demand in India and a gradual recovery of Atlantic production.
It is worth highlighting that the medium-term outlook of Atlantic iron ore exports is promising as Vale is expected to achieve the upper end of the 2024 production guidance that was set at 310 million to 320 million tons. Moreover, Vale is expected to ramp up production to 340 million to 360 million tons by 2026, while the [indiscernible] iron ore project in [indiscernible] will deliver the first quantities by the end of 2025.
Coal trade is expected to marginally expand by 0.6% in but contracts by 0.5% in ton miles during 2024. Global focus on energy security during the last years has inflated coal trade, but most of the growth has come from short-haul Indonesian exports. Chinese imports increased further during the first half and stand at record levels, both supported by a 1.9% year-on-year decline in domestic coal production and a 2.2% year-on-year increase in thermal electricity generation.
Nevertheless, during the last 2 months, a reversal of this trend is taking place following the seasonal strength of hydropower directed from provinces to increase production and stabilization of prices. During the last quarters, India is emerging as a leading buyer of coal as domestic consumption has outpaced production growth and along with inland infrastructure constraints has led to a strong increase in import requirements.
Grains trade is expected to expand by 4.4% in tons and by 10% ton miles during 2024. Exports from Latin America increased by approximately 12% during the first half as Argentinian volumes experienced a strong recovery. Moreover, Ukraine raised exports to the highest level since the start of the war. But at the same time, Russian wheat exports have been affected by frost lots and heat waves and key production areas. Total grain trade was flat year-over-year during the first half of 2024, but export volumes growth is expected to increase during the second half of 2024.
Lower grain prices, improved outlook for the forthcoming U.S. crop and increased focus on food security are expected to support a rate in the medium term. [indiscernible] trade is expected to expand by 3% in funds and by 4.1% in ton miles during 2024. Minor bulk trade has the highest correlation to global GDP growth and the recent strength in the container market provides a positive indicator for short-term prospects of smaller sizes. The positive price arbitral continues to certify Chinese steel exports and backhaul trades, while bauxite exports out of West Africa continued to expand at a high pace that generates strong terms for the Capesize sector.
As a final comment, despite the global geopolitical uncertainties were constructive about the medium-term prospects of our industry, given the favorable order book and aging fleet and oncoming rigorous environmental regulations. Star Bulk has built a diverse [indiscernible] -fitted fleet that is well positioned to operate efficiently and take advantage of attractive opportunities to create value for its shareholders. Without taking any more of your time, I will now pass the floor over to the operator to answer any question you may have.
We will now come back to the question-answer session. [Operator Instructions] The first question comes from Omar Nokta with Jefferies.
Good afternoon. Thanks for the update. Just a couple of questions for me. I wanted to ask, perhaps some just market related and Petros, you just gave an overview of the different markets. And just wanted to touch a bit more on that. Clearly, as we're looking in the market today, dry bulk rates are -- they've been holding up quite well, and you realized figures thus far into the third quarter show continued steady earnings. I would say. Obviously, there's volatility, but it looks like things aren't too crazy different. But this is happening somewhat of a softer steel environment, at least in terms of steel prices, when we look at where they are globally. And so I just wanted to ask, given that the steel backdrop and how it looks a bit softer, are you seeing this having any effect on the dry bulk market at the moment? And then also are you bit surprised perhaps that Capes are earning north of 20 in this type of environment?
Omar, thanks for the question. Well, we're actually positive over the second half of 2024 for a number of reasons. First of all, we see that the Red sea and the Ukrainian war are not finishing anytime soon. So this will continue to create inefficiencies. And this has an effect in the market. Then the environmental regulations are starting to bite. And you see that the fleet is basically slow steaming at around 11.1 knots. So this is going to get worse going forward.
Then we see Vale increasing their exports, the iron ore exports. And we see [indiscernible] increasing or keeping at a high level, their bauxite exports. We think we will see much stronger grain trades. We believe that China will not let up and we'll try to keep the 5% GDP growth going forward. We also see new building delivery slowing down. So -- and judging from the past, the second half of every year is much stronger than the first half -- is much more exports. So overall, we think that the decent market will remain for the next 6 months, at least. And it's not just related to whether there's going to be more production of steel or less production of steel in China where we think that it will be -- it will remain strong going forward, especially because of the manufacturing reasons and because they will continue to export for as long as they can. So from all respects, we expect to be seeing a decent market for the second half of the year.
And maybe just kind of a follow-up and thinking more about the midsize segment this time. I think one of the themes to say, late last year and coming into this year had been the expectation that Capes would outperform the Ultra and Kamsarmax segment. And that, I think, was the case earlier. But it feels like -- it looks like the midsized segments have done quite well here somewhat under the radar perhaps. What's driving that sort of stronger performance on the midsize would you say?
Well, all sizes are interconnected actually. So it's not like one size will go up and the rest will lag -- so I would say that if we see strong -- very strong capes, charters will try to cover by splitting cargoes, for example, or the other way around from Supramaxes to the midsize. So actually, whenever the -- the 2 hedges, the Capesize and the Supramax are doing better. You will see cargo flowing into the media sector, the Panamax [indiscernible]. In any case, I mean I think all types of vessels were strong Capes have remained on average, I think, above $25,000, which is pretty strong. Supras have done well because the container ship sector is doing pretty well. And I have to be -- I have to admit that I'm pretty surprised that our Kamsarmaxes have been fixed for the next quarter, a bit above $18,000 on average, probably because coal trade in the first half of the year was relatively strong, maybe because there's cargoes from the other 2 types of vessels, but we also expect they will be doing pretty well going forward because we foresee higher trade on the grain side.
Thank you, Mr. Our next question comes from [indiscernible] Clarkson Securities.
Just want to touch up on capital allocation. You have quite a significant portion of cash now. How are you looking at share buybacks going forward?
[indiscernible] we spent $380 million in the fall buying back 20 million shares of stock, Oaktree was the seller, but frankly, from the shareholders' point of view, it doesn't know who the seller was, but what the price was. And it was substantially below net asset value and below today's market value. So it was a big benefit to shareholders. And we pretty much feel like we're exhausted by the effort of buying back those shares at that time, let us recover our breadth and figure out what to do. We're paying out a big dividend and we do have a bunch of cash after that. We, as you might recall, I have a policy of keeping $2.1 million of cash per vessel on the balance sheet permanently. And we've got some cash in excess of that, but it's not a huge amount. So I don't think we're under pressure to figure out what to do with that cash for the moment, not until it builds up to something more substantial.
That's great color. And maybe just to follow up on that. How are you looking at growth? And if you were sort of forced to choose a segment to grow in, which one would it be?
What we really like being diversified. And we've just bought a bunch of Supramaxes and Ultramaxes. So ideally, if we find a merger partner, we would like to find a merger partner we've got case and larger ships generally. So you can always get what you want. But hopefully, we get what we need.
Our next question comes from Ben Nolan with Stifel.
This is actually Canela on for Ben. But I wanted to ask, since secondhand asset values have been sort of plateauing recently. What direction do you see this moving forward?
Shipments. Do you want to talk about ship [indiscernible] As well. Ship ranges have increased substantially during the first half of this year. We are seeing a stabilization over the last 1, 2 months. We believe that Chivas as is mentioned, plateau and probably remain at these levels, but a lot will depend on how the market performs towards the end of the year when we expect the freight market to be stronger.
And I guess the shipyards are still quite full.
Yes. Shipyard capacity for 2026 is actually almost all gone. And we -- especially for the other sizes, and we are now are starting to see 2027 slowly being filled. So in something that will drive a posting prices of our modern vessels since we haven't seen such conditions for a few decades, actually. Yes. But overall, we believe that prices have actually reached a pretty high price and they will plateau from here unless, of course, there is a huge upside in the market at some point. Otherwise, if the market remains where it is, we think this is -- we're very close to the highs of the high values of the vessels.
[Operator Instructions] Once again, ladies and gentlemen, to ask a question at this time. That one to ask a question at this time. There are no questions in queue. I would like to turn the call back to management for closing comments.
No further comments, operator. Thank you very much, and have a great summer, everybody.
Thank you, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.