International Seaways (NYSE: INSW) reported Q1 EPS of $1.12, $0.34 worse than the analyst estimate of $1.46. Revenue for the quarter came in at $125.34 million versus the consensus estimate of $121.89 million.

Highlights

• Net income for the first quarter was $33.0 million, or $1.12 per diluted share, compared to a net income of $10.9 million, or $0.37 per diluted share, in the first quarter of 2019. Net income for the quarter reflects the impact of a $2.8 million gain on sale of vessels, a $12.5 million write-off of deferred financing costs, and a $1.0 million loss from the extinguishment of debt. Net income excluding these items was $43.7 million, or $1.49 per diluted share.
• Time charter equivalent (TCE) revenues(A) for the first quarter were $119.7 million, compared to $94.0 million in the first quarter of 2019.
• Adjusted EBITDA(B) for the first quarter was $74.2 million, compared to $47.3 million in the same period of 2019.
• Cash(C) was $110.3 million as of March 31, 2020; total liquidity was $150.3 million, including $40.0 million undrawn revolver.
• Closed on new senior secured credit facilities aggregating $390 million, with proceeds used to refinance $383 million of existing high-cost secured and unsecured debt.
• Repurchased 490,592 shares at an average price of $20.41 per share, for a total cost of $10.0 million.
• Paid first quarterly cash dividend as a public company of $0.06 per share in March 2020.
• Took delivery of a 2009-built LR1, the Seaways Guayaquil.
• Sold and delivered a 2002-built Aframax, the Seaways Portland, and sold a 2001-built Aframax, Seaways Fran.

“Our substantial operating leverage and earnings power were evident in our first quarter results, as we posted our highest quarterly EPS as a public company,” said Lois K. Zabrocky, International Seaways’ President and CEO. “The rate environment strengthened in the second quarter with low oil prices, excess oil supply and the increasing demand for floating storage pushing rates higher. With our sizeable fleet and significant exposure to the VLCC market, we have captured this market strength, which will positively impact our earnings. In addition to strong second quarter bookings to date, we capitalized on the robust rate environment by entering into a number of very favorable time charters. Specifically, we locked-in four time charters for periods ranging from seven to 36 months with major oil producing and trading companies at very attractive rates.”

Ms. Zabrocky continued, “Amid an unprecedented health crisis, ensuring the safety of our on-shore and at sea professionals and providing safe, reliable service to our customers remains our priority. We have taken a number of precautionary steps across our offices and fleet in order to protect our shore-based employees and our seafarers and contractors in response to COVID-19. Although we have faced many disruptions, to date our operations have not been materially affected. In addition to serving these important stakeholders, we are focused on creating lasting shareholder value, executing our disciplined and balanced capital allocation strategy, which included the initiation of a regular quarterly cash dividend and opportunistically repurchasing shares in the first quarter. Importantly, we have maintained our balance sheet strength, which will serve us well in periods of high volatility.”

Jeff Pribor, the Company’s CFO, added, “With the successful completion of our refinancing in January, which reduced annual interest expense significantly and further strengthened our capital structure, we ended the quarter with over $150 million in total liquidity. At a time when our net loan to asset value of our conventional tanker fleet is 42%, which is one of the lowest leverage profiles in the public company shipping sector, our balance sheet strength enabled us to return capital to shareholders, paying a $0.06 dividend and repurchasing $10.0 million of shares during the quarter.”

Outlook

We currently believe that the second and third quarters of 2020 will likely be a stronger rate environment for tankers, due to excess crude supply and the resulting need for seaborne storage of crude oil and products, than 2021. Accordingly, we are shifting the scrubber installations on three of our modern VLCCs to 2021, aligning such installations with the vessels’ natural drydocking dates. Further, postponing these installations will help alleviate current challenges being faced as a result of extensive travel restrictions instituted in response to the COVID-19 pandemic.

Tanker rates in the second quarter thus far have been highly volatile. Despite the OPEC+ agreement in early April 2020 to cut production substantially beginning in May/June 2020, the total oil being produced is still substantially greater than global demand. This excess production continues the need for tankers to be used as floating storage, and, coupled with increased delays offloading cargoes as shore-based storage fills up, has supported a robust tanker rate environment. This implies significant cash generation in the near term. When supply and demand eventually come back into balance, this could have negative repercussions for tankers as the oil held in inventory will supplant oil tanker transportation demand. In an effort to take advantage of the dynamic oil tanker markets and reduce risk we have opportunistically put four of our VLCCs on time charters for periods ranging from seven months to 36 months at current high rates with major oil producing and trading companies.

For earnings history and earnings-related data on International Seaways (INSW) click here.