Teekay Tankers Ltd (TNK) Tops Q3 EPS by 1c

Teekay Tankers Ltd (NYSE: TNK) reported Q3 EPS of ($0.08), $0.01 better than the analyst estimate of ($0.09). Revenue for the quarter came in at $182.3 million versus the consensus estimate of $96 million.

Highlights

• Reported GAAP net loss of $19.9 million, or $0.07 per share, and adjusted net loss(1) of $21.2 million, or $0.08 per share, in the third quarter of 2019 (excluding items listed in Appendix A to this release).
• Total Adjusted EBITDA(1) of $27.8 million.
• Secured strong fourth quarter of 2019 to-date spot tanker rates of $38,000 and $30,500 on average per day for Teekay Tankers' Suezmax and Aframax fleet, an increase of 133 percent and 105 percent, respectively, compared to the third quarter of 2019.
• Approximately 90 percent of Teekay Tankers’ fleet is currently trading in the spot tanker market; every $5,000 per day increase in spot tanker rates results in approximately $95 million, or $0.35 per share, in additional annual net income.
• Transitioning away from the current formulaic dividend policy to focus on delevering balance sheet, building net asset value, and reducing cost of capital (refer to CEO Commentary and Summary of Recent Events sections below for more details).
• Signed term sheet for a new 5-year, $595 million revolving credit facility to refinance a majority of Teekay Tankers’ fleet on substantially similar terms.

CEO Commentary

“As expected, crude spot tanker rates declined from the second to the third quarter of 2019, mainly due to normal seasonality,” commented Kevin Mackay, Teekay Tankers’ President and CEO. “Crude spot tanker rates subsequently began to firm in September 2019 on the back of stronger market fundamentals. Against that supportive fundamental backdrop, a series of market events in late-September and into October 2019 drove rates to the highest levels since the peak of the super cycle in 2008. Teekay Tankers has been able to benefit from this strengthening tanker market as evidenced by the strong Suezmax and Aframax tanker rates we have secured in the fourth quarter of 2019 to-date, which have so far averaged approximately 133 percent and 105 percent higher than rates we earned in the third quarter of 2019, respectively. Looking ahead, as the strong underlying supply and demand fundamentals persist, we continue to have a positive view of the tanker market into the winter months and 2020.”

“Last year and in early-2019, after consideration of various alternatives, Teekay Tankers entered into several higher-cost sale-leaseback transactions to bolster its liquidity position during a period of pronounced weakness in the tanker market, which enabled us to avoid issuing dilutive common equity or selling assets at less than optimal trough valuations, but resulted in increasing our balance sheet leverage and our overall cost of capital. Therefore, we believe that the most prudent and accretive allocation of our capital at this time is to transition away from our current earnings-based formulaic dividend policy and to instead allocate our growing cash flows towards reducing our financial leverage, which will further build net asset value and reduce our cost of capital. We also believe that having a strong balance sheet should help to narrow the valuation gap between our share price and our net asset value, which would further contribute directly to shareholder returns,” continued Mr. Mackay. “As our balance sheet delevers, Teekay Tankers believes that it will ultimately have greater financial flexibility to allocate capital towards a variety of uses, including returning capital to shareholders through dividends and/or share repurchases and potential vessel acquisitions at attractive times in the tanker cycle. However, given our current strong market position and significant operating leverage, we do not intend to acquire vessels at this time but instead, may seek to crystallize vessel values and further accelerate our balance sheet delevering by opportunistically selling some of our existing assets as values continue to strengthen.”

Mr. Mackay added, “To improve the marketability of Teekay Tankers’ shares to a broader base of potential investors, we have decided to increase the market price of the Company’s common shares through a one-for-eight reverse stock split. This change is expected to take effect at the opening of the market on November 25, 2019.”

With regard to the IMO 2020 regulations, Mr. Mackay highlighted, “On January 1, 2020, the shipping industry will move to a new emissions standard based on 0.5 percent sulphur fuel. Teekay Tankers fully supports the use of cleaner burning fuels across the industry as it aligns directly with our core value of Sustainability. Our journey towards ensuring compliance with these new regulations has been three years in the making and having commenced purchasing these lower sulphur, cleaner burning fuels in recent weeks, we are confident that our extensive preparations will result in a seamless transition to operating with the new fuel standard.”

“With significant operating leverage, expected increases in asset values and the potential to close the valuation gap, we believe that Teekay Tankers is one of the best positioned companies in our sector to create shareholder value both in the near-term and over time. We look forward to presenting at our Teekay Group investor and analyst meeting tomorrow morning starting at 8:30 am in New York, which will include more in-depth discussions on our strategy and financial position, our views on the tanker market, and our IMO 2020 preparations.”

For earnings history and earnings-related data on Teekay Tankers Ltd (TNK) click here.

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