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Overseas Shipholding Group Inc. , the second largest independent oil tanker company in the world, reported mounting losses in the first quarter of 2011. Despite this, quarterly results beat the Zacks Consensus Estimates. Overseas Shipholding has a massive 80% spot exposure. The average spot rate of oil tanker fell 77% in the last quarter, which significantly eroded the company’s bottom line.

Quarterly GAAP net loss was $34.6 million or a loss of $1.15 per share compared with a net loss of $9.4 million or a loss of 34 cents per share in the prior-year quarter. However, first-quarter 2011 adjusted EPS of a loss of $1.15 was narrower than the Zacks Consensus Estimate of a loss of $1.53. The previous quarter was the company’s eighth straight quarter, where is incurred losses.

Quarterly Shipping revenue was nearly $263.7 million, down 2.3% year over year. First quarter Time Charter Equivalent (TCE) revenue was $206.6 million, down 10.1% year over year, surpassing the Zacks Consensus Estimate of $203 million. TCE revenue represents Shipping revenue less Voyage expenses.

Segment Wise Shipping Revenue

Quarterly Pool revenue was $77.2 million, down 29.2% year over year. Time and bareboat charter revenue was $60.5 million, down 7.8% year over year. Voyage charter revenue was $126 million, up 31.8% year over year.

TCE Revenue in Details

Quarterly TCE revenue for the International Crude Oil Tankers segment was $88.8 million, down 33% year over year. This was mainly due to an adverse shift in the mix of spot and fixed charters. International Product TCE revenue was $45.3 million, down 10% year over year. This was primarily due to a significant decline in realized spot rates. U.S. Flag TCE revenue was $68.4 million, up 50% year over year.

Operating Expenses

Total operating expenses, in the first quarter of 2011, was $289.5 million, up 9.1% year over year. Voyage expenses increased 43.1% year over year. Vessel expense decreased 8.3% year over year. Charter hire expenses upped 5.2% year over year. General & Administrative expense was down by 8.8% year over year. 

Cash Flow

During the first quarter of 2011, Overseas Shipholding generated $10.5 million of cash from operations compared with a cash consumption of $14.2 million in the prior-year quarter. Free cash flow, in the reported quarter was a negative $53.2 million compared with a negative $126.3 million in fiscal 2010.

Liquidity

At the end of the first quarter of 2011, Overseas Shipholding had $277.7 million of cash & marketable securities compared with $273.7 million at the end of fiscal 2010. Total debt, at the end of the reported quarter, was $2,061 million compared with $1,986.2 million at the end of fiscal 2010. At the end of the first quarter of 2011, debt-to-capitalization ratio was 0.53 compared with 0.52 at the end of fiscal 2010.

Operating Metrics

Quarterly total revenue days were 9,592 compared with 8,773 in the year-ago quarter. Within this, total Crude oil revenue days were 4,308 compared with 4,495 in the prior-year quarter. Total Refined Petroleum Products revenue days were 3,349 compared with 2,846 in the prior-year quarter. Total U.S. Flag revenue days were 1,755 compared with 1,342 in the year-ago quarter. Other revenue days were 180 compared with 90 in the year-ago quarter.

Our Recommendation

Overseas Shipholding mainly competes with Frontline Ltd. (FRO - Snapshot Report) and Teekay Corp. (TK - Snapshot Report). We maintain our long-term Neutral recommendation for Overseas Shipholding. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.

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