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Yesterday after market close, DryShips Inc. (DRYS - Analyst Report) declared mixed financial results for the fourth quarter of 2011. Though DryShips’ legacy drybulk shipping cargo division and newly formed oil tanker division continue their pathetic performances, the company’s majority owned deepwater oil drilling unit Ocean Rig UDW Inc. (ORIG - Snapshot Report) helped DryShips’ to deliver.

The offshore drilling division continues to flourish buoyed by high oil prices, rising expenditures from oil companies and success in ultra deep water oil field discoveries. Currently, Ocean Rig has $2.3 billion of order backlog. DryShips declared that it will disinvest its 73.9% holdings on Ocean Rig in the near future but will delay the IPO of its oil tanker division. 

Quarterly GAAP net loss was $6.2 million or a loss of 2 cents per share compared with a net income of $97.9 million or 30 cents per share in the prior-year quarter. However, adjusted (excluding one-time charges) EPS in the fourth quarter of 2011 was 7 cents, a penny shy of the Zacks Consensus Estimate. Quarterly total revenue was $328.2 million, up 52.1% year over year, significantly above the Zacks Consensus Estimate of $286 million.

Quarterly total operating expenses were $271.62 million, up 98% year over year. This was mainly attributable to higher drilling rigs operating expenses, higher depreciation and amortization charges, and higher loss from vessels impairment. Operating income in the fourth quarter of 2011 was $56.6 million compared with $78.6 million in the prior-year quarter. In the fourth quarter of 2011, adjusted EBITDA (excluding gain/loss from interest rate swaps) was $164.4 million compared with $134.9 million in the prior-year quarter.

At the end of 2011, DryShips had $251.1 million of cash & cash equivalents and $4,241.8 million of outstanding debt on its balance sheet compared with $391.5 million of cash & cash equivalents and $1,988.5 million of outstanding debt at the end of 2010. At the end of 2011, debt-to-capitalization ratio was 0.49 compared with 0.34 at the end of 2010.

Drybulk Carrier Segment

Quarterly Drybulk carrier revenue was $86.6 million, down 23.7% year over year. Time charter equivalent revenue was $81.6 million, down 23.5% year over year. Time charter equivalent TCE was $25,479, down 20.2% year over year. Total voyage days per fleet were 3,204, down 4.1% year over year. Management declared that 56% of its operating days in the Drybulk segment in 2012 are at present under fixed rate charters at an average rate of about $34,720 per day.

Oil Tanker Segment

Quarterly Tanker revenue was $3.9 million. Time charter equivalent revenue was $3.7 million. Time charter equivalent TCE was $10,105. Total voyage days per fleet were 361.

Offshore Drilling Segment

Quarterly revenue from Drilling contracts was approximately $237.7 million, up 132.3% year over year.

Recommendation

We maintain our long-term Neutral recommendation onDryShips. Currently, DryShipshas a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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