Global Weakness Hurts OSG's 3Q

Overseas Shipholding Group Inc. ( ) , the second largest independent oil tanker company in the world, reported disappointing financial results for the third quarter of 2011. The company suffered losses for the tenth straight quarters. The spot rate of its very large crude carriers (VLCC) fell 66% in the previous quarter. Unfortunately, Overseas Shipholding has significant spot exposure.

Quarterly Shipping revenue was nearly $256.4 million, down 1.4% year over year. Third-quarter Time Charter Equivalent (TCE) revenue was $186.2 million, down 10.7% year over year, also below the Zacks Consensus Estimate of $210 million. TCE revenue represents Shipping revenue less Voyage expenses.

Quarterly GAAP net loss was $71.1 million or a loss of $2.35 per share compared with a net loss of $31.8 million or $1.06 per share in the prior-year quarter. Third-quarter 2011 adjusted EPS of a loss of $2.20 was also higher than the Zacks Consensus Estimate of a loss of $2.13.

Segment Wise Shipping Revenue

Quarterly Pool revenue was $50.3 million, down 38.3% year over year. Time and bareboat charter revenue was $70.3 million, down 2% year over year. Voyage charter revenue was $135.8 million, up 27.3% year over year.

TCE Revenue in Details

Quarterly TCE revenue for the International Crude Oil Tankers segment was $54.4 million, down 43% year over year. This was mainly due to the massive fall in spot rates for VLCC, Suezmax, Aframax and Panamax vessels. International Product TCE revenue was $50 million, remaining flat year over year. U.S. Flag TCE revenue was $81.8 million, up 33% year over year.

Operating Expenses

Total operating expenses, in the third quarter of 2011, was $308.8 million, up 12.1% year over year. Voyage expenses increased 36.7% year over year. Vessel expense spiked 18.2% year over year. Charter hire expenses upped 4.8% year over year. General & Administrative expense was down 20.9% year over year.

Cash Flow

During the first nine months of 2011, Overseas Shipholding used $24.2 million of cash for operations compared with a cash generation of $35.3 million in the prior-year period. Free cash flow, in the reported period, was a negative $192.9 million compared with a negative $277.5 million in prior-year period.

Liquidity

At the end of the third quarter of 2011, Overseas Shipholding had $182.1 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 $2,126.2 million compared with $1,986.2 million at the end of fiscal 2010. At the end of the third quarter of 2011, debt-to-capitalization ratio was 0.56 compared with 0.52 at the end of fiscal 2010.

Our Recommendation

Overseas Shipholding mainly competes with Frontline Ltd. ( FRO - Snapshot Report ) and Teekay Corp. ( TK - Snapshot Report ) . We maintain our long-term Underperform recommendation on Overseas Shipholding. Currently, it holds a short-term Zacks #5 Rank (Strong Sell) on the stock.