Safe Bulkers, Inc. (SB), a global provider of marine drybulk transportation services, reported a solid financial performance in its Third Quarter 2024 Earnings Call on November 1, 2024. The company disclosed a significant increase in net income and adjusted EBITDA compared to the same quarter in the previous year.
The company’s Chairman and CEO, Polys Hajioannou, along with President Loukas Barmparis and CFO Konstantinos Adamopoulos, presented the financial results, which showed a net income of $25.1 million and an adjusted EBITDA of $41.3 million, an improvement from $15 million and $30.9 million, respectively, in Q3 2023. Additionally, Safe Bulkers declared a dividend of $0.05 per common share.
Key Takeaways
- Safe Bulkers reported a net income of $25.1 million and an adjusted EBITDA of $41.3 million for Q3 2024.
- The company declared a consistent dividend of $0.05 per common share.
- The Cape market segment remains stable, contributing to a revenue backlog of $175 million.
- Softening charter market for Panamax vessels, with geopolitical uncertainties and China's economic slowdown impacting demand.
- Safe Bulkers has a strong liquidity position of $295 million and a leverage ratio of 32%.
- The company plans to expand its fleet sustainably and reward shareholders.
Company Outlook
- Safe Bulkers expects a 1% decline in global dry bulk demand growth in 2025 due to geopolitical uncertainties and slower economic growth in China.
- Despite market challenges, the company has a robust financial position with nearly $570 million in total revenue for Q4 2024.
- Management is committed to fleet expansion, with newbuilding deliveries planned over the next three years.
Bearish Highlights
- The overall charter market is showing signs of softening, particularly for Panamax vessels, which are averaging low daily rates.
- Expected decline in global dry bulk demand growth poses potential challenges for the market.
Bullish Highlights
- The Cape market segment remains stable, with all eight Capes chartered at an average daily rate of $23,600.
- The company's strong liquidity and comfortable leverage ratio provide flexibility for fleet expansion and shareholder rewards.
Misses
- No specific misses were discussed during the earnings call.
Q&A Highlights
- Management does not plan to significantly reduce the leverage level, maintaining it at a comfortable 32%.
- The company is open to opportunistic fleet expansion, particularly in larger vessel classes like Capes, depending on market conditions.
- There is confidence in the company's liquidity and leverage, which supports ongoing fleet expansion and shareholder returns.
Safe Bulkers, with its 46-vessel fleet, 23 of which have undergone environmental upgrades, continues to navigate the dry bulk shipping industry with a strategic approach. The company's solid financial results and commitment to shareholder value, coupled with a cautious eye on market conditions, position it to weather potential headwinds in the global market.
InvestingPro Insights
Safe Bulkers, Inc. (SB) continues to demonstrate financial resilience in a challenging market environment. According to InvestingPro data, the company's market capitalization stands at $453.77 million, reflecting its significant presence in the dry bulk shipping industry.
One of the most striking metrics is SB's impressive gross profit margin of 64.05% for the last twelve months as of Q2 2024. This aligns with an InvestingPro Tip highlighting the company's "impressive gross profit margins." Such robust profitability is particularly noteworthy given the softening charter market for Panamax vessels and the expected decline in global dry bulk demand growth mentioned in the earnings call.
Despite market headwinds, Safe Bulkers maintains a strong financial position. The company's P/E ratio of 5.35 suggests it may be undervalued relative to its earnings, which is supported by an InvestingPro Tip indicating that SB is "trading at a low earnings multiple." This valuation could be attractive to investors, especially considering the company's consistent dividend payments and plans for fleet expansion.
Another relevant InvestingPro Tip notes that "management has been aggressively buying back shares." This aligns with the company's commitment to rewarding shareholders, as mentioned in the earnings call. Such actions, combined with the declared dividend of $0.05 per common share, underscore management's confidence in the company's financial health and future prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights. In fact, there are 11 more tips available for Safe Bulkers on the InvestingPro platform, providing a deeper understanding of the company's financial position and market outlook.
Full transcript - Safe Bulkers Inc (NYSE:SB) Q3 2024:
Operator: Ladies and gentlemen, thank you for standing by. And welcome to the Safe Bulkers Conference Call on the Third Quarter 2024 Financial Results. We have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer; Dr. Loukas Barmparis, President; and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today. The archived webcast of the conference call will soon be made available on the Safe Bulkers website at www.safebulkers.com. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can cause actual results differ materially from those in the forward-looking statements is contained in the third quarter 2024 earnings release which is available on the Safe Bulkers website again at www.safebulkers.com. I would now like to turn the conference call over to one of your speakers today, the Chairman and CEO of the company, Mr. Polys Hajioannou. Please go ahead, sir.
Dr. Loukas Barmparis: Okay. Hi. Good representation. Good morning to all. I’m Loukas Barmparis, President of Safe Bulkers. We had a good quarter compared to the same quarter last year, however, the charter market is gradually softening, allowing with continuing geopolitical uncertainties. We remain focused on capital allocation towards our newbuilds program, on improving our operational efficiency and on rewarding our stockholders with a dividend of $0.05 per share of common stock. Following a comprehensive review of the forward-looking statements, which is presented in Slide #2, let us begin with a market update in Slide #4. The Cape market segment has been volatile throughout the quarter, all eight of our Capes are presently period charted, boosting an average remaining charted duration of 2.6 years with an average daily rate of $23,600. This provides us with a considerable degree of cash flow visibility, topping $175 million in contracted revenue backlog from Capes alone. On the Panamax front, the charter market stands soft at low $10,000. Moving on to Slide 5, we present an overview of our CRB Commodity Index fluctuation in basic commodity prices. Global disinflation continues, raising the prospects of further easing of interest rates, but with a decreased rate, leading to higher for longer interest rates in the context of policy uncertainty. The geopolitical landscape, with continuing tensions in the Middle East, the Red Sea and Ukraine, underscores the heightened level of global uncertainty, which leads to softer global GDP growth expectations for 2025 and 2026, as reflected in the IMF October forecast, for a growth of about 3.2% to 3.3% in the coming years, accompanied by control of inflationary pressures. The dry bulk demand outlook indicates slowing growth with significant uncertainty. According to BIMCO, the forecasted global dry bulk demand growth will have a 1% fall in 2025. China’s slower growth may hinder demand for dry bulk commodities like iron ore and coal, while the impact of the recently introduced $1.4 trillion package over five years for the so-called local government’s hidden debt is expected to alleviate pressure on local authorities and free up funds for supporting economic growth and sustains many investors’ expectations for more direct fiscal support next year. Iron ore shipments are estimated to grow slightly, but weak Chinese demand and increased recycled steel users are anticipated to restrict growth. Coal shipments may drop by about 3.5% due to rising renewable energy use in Asia and increased coal production in China and India. Grain shipments are predicted to rise by 1.5%, but May’s supply remains tight, particularly from Ukraine. Minor bulk shipments, including bauxite, are expected to be a key growth driver as demand increases due to the energy transition. Freight rates are likely to be softer, particularly for Panamax vessels, due to the supply-demand imbalance expected from growing fleet sizes and moderating demand. Chinese economy faces challenges from weak domestic demand and real estate sector crisis impacting growth rates. The IMF projects China’s GDP growth to be 4.5% in 2025 and 4.1% in 2026, signaling a gradual slowdown. The limited consumer spending and high debt levels are hampering economic recovery, despite the recent fiscal stimulus measures. The weakness in the steel and construction sectors is expected to reduce demand for key commodities such as iron ore. Trade barriers and external pressures could further limit China’s growth potential, with risks of deflation affecting domestic stability. India, on the other hand, is projected to experience the fastest growth among major economies, with a forecasted 6.5% GDP increase in 2025 and 2026. India’s expanding domestic market and manufacturing sector contributes positively to the dry bulk demand, with infrastructure investments playing a vital role, increased renewable energy and industrial growth will be key drivers for India’s economic momentum. The agricultural productivity and favorable monsoon conditions could stabilize inflation and support growth, enhancing its food security. Let’s proceed now to Slide 5 -- 6 to examine supply-side dynamics. A combination of increased recycling and stable delivery rates is expected to balance the fleet expansions, yet supply growth may continue to outpace demand. Accepting pressure of freight rates, the dry bulk fleet is projected to grow by about 3% on average in 2025 and 2026, due to stable new deliveries and increased recycling with Panamax vessels comprising the largest share. Recycling volumes are anticipated to rise as weaker market conditions could prompt the retirement of older vessels. Newbuilding orders have slowed as their order book now stands at about 10% of the current fleet. Supply could be marginally impacted by concession reductions, as seen in Brazilian port concessions in 2024, due to smaller grain harvests. Asset prices, which rose in 2024, are projected to weaken over the next few years, and second-hand ships prices may fall in line with expected lower freight rates. Chinese shipyards are expanding, but unless bulk contracting increases, newbuilding prices are unlikely to rise significantly. Currently, about 25% of the existing global fleet is older than 15 years. Safe Bulkers fleet now counts 11 Phase 3 vessels on the water, all delivered after 2022. In addition, 23 vessels have been environmentally upgraded and 11 are eco-vessels, having superior design efficiencies. 80% of our fleet comprises of Japanese-built vessels, surpassing the global average of 40%, with our average fleet age being just 9.8 years. Overall, our fleet today is fundamentally upgraded and commercially more competitive than two years ago, underscoring our commitment to sustainable business. We will continue to become even more commercially competitive, as we have on our order book seven more Phase 3 vessels, placed at prices well below the prevailing market, to be delivered to us within the next two years. The impact of fleet aging and stringent environmental regulations will position our fleet favorably to complete within the stringent greenhouse gas targets. Let’s go now to Slide 8 for our company update, we present an overview of our green fleet advantages. The fleet breakdown is presented in the top right graph, comprising of 46 vessels, with 23 having undergone environmental upgrades, 11 being Phase 3, 11 being eco, and the remaining ones scheduled to be upgraded within this year. The bottom graph presents our fleet renewal strategy, with the divestment of 14 older vessels, acquisition of seven second-hand vessels, delivery of 11 Phase 3 newbuilds and an order book comprising of seven more Phase 3 newbuilds, resulting to a stable 10-year average fleet age over the past four years, as clearly presented in Slide #9, a trajectory of fleet expansion serving as a testament to our commitment towards sustainability. In Slide 10, we present Safe Bulkers’ debt profile for the next couple of years, which stands at a very comfortable level throughout the period, with adequate room for our CapEx spending and surplus rewarding. As of September 30, 2024, our consolidated debt before deferred financing costs are of about $500 million, including the €100 million unsecured bond at a 2.95% fixed coupon, maturing in February 2027. Our consolidated leverage stands at a comfortable 32% and our net debt per vessel stood just below $9 million for an average-aged fleet of less than 10 years old. Concluding the company update, in Slide 11, we present Safe Bulkers’ key attributes, such as our sterling 65-year track record, a robust management-ownership alignment, comfortable leverage of 32%, our ample liquidity of $295 million, our significant contracted backlog of $233 million, our green fleet abundance evidenced by a 7.4% decrease in fleet AER of greenhouse gas emissions and our DryBMS Standards Managed System implementation in anticipation of forthcoming environmental regulations. We remain true in our commitment to expand by building a resilient company, owing a quality and competitive fleet, strategically positioned to leverage on the regulatory landscape and reward our shareholders with a meaningful dividend payout ratio. I now pass the floor to our CFO, Konstantinos Adamopoulos, for our quarterly financial overview. Konstantinos, the floor is yours.
Konstantinos Adamopoulos: Thank you, Loukas, and good morning to all of you. General note, during the third quarter of 2024, we operated in a stronger charter market environment compared to the same period in 2023, with increased revenues due to higher charter hires, increased earnings from scrubbed vessels and higher interest expenses due to increased interest rate environment. Let’s now focus on our liquidity, our cash flows and our capital structure as presented in Slide 13. We are maintaining a comfortable leverage of 32%. Our debt of $499 million remains comparable to our fleet’s scrubbed value of $330 million, although our fleet is young at just 9.9 years old. Our weighted average interest rate stood at 6.35%, inclusive of margin for our consolidated debt, with a portion of $100 million in euros (sic) [€100 million] [ph] fixed at a 2.95% coupon for the unsecured five-year bond. We have already paid $94.6 million or 29% of our commitments for our CapEx in relation to our outstanding order book. Our liquidity and capital resources stand strong at approximately $318 million, which together with a contracted revenue of about $250 million gives a total of almost $570 million. This is more than double our outstanding CapEx of $232 million and this provides flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to two existing unencumbered vessels and seven newbuilds upon their delivery. We assure that the capital expenditure is adequately covered by our contracted future revenues, fortifying our balance sheet towards a trajectory of sustainable growth. Moving to Slide 14 with our quarterly financial highlights for the fourth quarter of 2024 in comparison to the same period of last year. Our adjusted EBITDA for the third quarter of 2024 stood at $41.3 million. This compares to $30.9 million for the same period in 2023. Our adjusted EPS for the third quarter of 2024 was $0.16 and this is calculated on a weighted average number of 106.8 million shares, in comparison to $0.08 during the same period in 2023, that was calculated on a weighted average number of 111.6 million shares. In Slide 15, we present an overview of our quarterly operational highlights for the third quarter of 2024, again in comparison to the same period of 2023. During the third quarter of 2024, we operated 45.27 vessels on average, those earning an average TCE of $17,180, compared to 44.13 vessels earning an average TCE of $14,861. The company’s net income for the third quarter of 2024 was $25.1 million, compared to a net income of $15 million during the same period in 2023. In conclusion to our presentation, we would like to point out that based on our financial performance, the company’s Board of Directors has declared a $0.05 dividend per common share. We would like to emphasize that the company is maintaining a healthy cash position of about $90 million as of November 1, 2024, and added $205 million in committed and available revolving credit facilities, thus a combined liquidity of $295 million. Furthermore, we have contracted revenue for our non-cancelable spot and period time charter contracts of $232 million, this is net of commissions, and before scrapped revenue, and additional borrowing capacity in relation to our two unencumbered vessels and seven newbuilds. We believe our strong liquidity and our comfortable leverage will enable us to expand the fleet while still rewarding our shareholders. We are now ready for the Q&A section.
Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Emily Harkins with Jefferies. Please proceed with your question.
Emily Harkins: Hi. This is Emily on for Omar. Thank you for taking our question. First, you outlined that consolidated leverage is 32% at the end of the quarter. We wanted to know, are you comfortable at this level or are you striving to lower your debt? Is the goal to be debt free? Why or why not?
Dr. Loukas Barmparis: Yeah. Could you please speak a little bit slower because the sound is not very clear?
Emily Harkins: Yeah. Of course. I wanted to ask, you outlined that consolidated leverage is 32% at the end of the quarter and we wanted to know, are you comfortable at this level or are you striving to lower your debt and is the goal to be debt free?
Dr. Loukas Barmparis: Yes. Good morning to you. No, this is a very comfortable level. We don’t plan to reduce it much further. We take newbuilding deliveries in the next three years. So this ratio or anything below 40% is good enough, even if it raises to 45% or 50% in later years, it’s still a very comfortable ratio given the age of the fleet.
Emily Harkins: Thank you. And as a follow-up, Panamax spot rates have lagged in comparison to other dry bulk classes, such as the Capes and Supramaxes. Could you please provide some color as to why there might be a discrepancy there?
Dr. Loukas Barmparis: Look, the company owns Panamaxes and Kamsarmaxes, post-Panamaxes and Capes. So basically on the medium-to-large dry bulk assets. And we don’t own any Ultramaxes or any Handys. There is not one category that you can decide to expand on. It’s opportunistic if you will expand. The company will expand in Kamsarmax or Capes in the future. It remains to be seen according to opportunities that appear. Capesize vessels are not that many and their market is even in periods of low market. They have been doing well in recent years because of demand from China. And of course, in the future if there is opportunity to expand in that sector of the market, we will do so. But we need to see lower prices to do that.
Emily Harkins: Thank you. I’ll turn it over.
Operator: [Operator Instructions] Thank you. It appears we have no further questions at this time. I would now like to turn the floor back over to management for closing comments.
Dr. Loukas Barmparis: Okay. Thank you for your attention. Just a quick remark also in terms of how comfortable we feel with the 32% consolidated leverage. I mean you can see in Slide 13, the leverage in comparison with the scrap value of the vessels when they are 25 years old. We understand that we feel extremely comfortable because we are just about less than $200 million from that price. Thank you for attending this conference call and we are looking forward to discuss again with you in our next quarter for the next quarter and year-end financial results. Thank you very much.
Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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