Genco Shipping & Trading Limited Q4 FY2025 earnings call

• Launched comprehensive value strategy in 2021 with objectives of low leverage, high dividend, and fleet growth. Achieved success with investments, dividends, and debt reduction.
• In Q4 2025, declared 26th consecutive dividend with annualized yield of 9%, highest since Q4 2022. Completed 90% of 2025 dry docking schedule and delivered a high-quality modern Capesize vessel. Agreed to purchase 2 2020-built Newcastlemax vessels to be delivered in March 2026, increasing operating leverage. Ended Q4 with industry low net loan-to-value of 12%.
• Q4 2025 had highest EBITDA and TCE for the year. Estimated Q1 2026 TCE is highest Q1 level since 2024 and over 50% above Q1 2025. Genco has low cash flow breakeven rate, balanced fleet composition, high operating leverage with low financial leverage. Taken advantage of strong liquidity for opportunistic acquisitions of modern vessels since 2023. Capesize vessels have increased in value and generated high IRR. Prioritizes strong corporate governance, being largest US headquartered dry bulk shipping company with no related party transactions and top quartile corporate governance ranking.
• In Q4, net income was $15.4 million or $0.35 basic and diluted net earnings per share, adjusted net income $17.3 million or $0.40 and $0.39 basic and diluted earnings per share. Sequential increase in quarterly EBITDA culminated in strong Q4 performance, highest since 2022. Board declared $0.50 per share dividend in Q4 based on operating cash flow and voluntary reserve. Q1 2026 has 80% of owned available days fixed, TCE on pace to increase over 50% year-over-year, vessel operating expense to marginally increase in Q1 but revert to Q4 levels moving forward.
• Dry bulk freight rate environment improved in second half of 2025, led by Capesize sector. Baltic Capesize Index averaged nearly $29,000 per day in Q4. China's iron ore imports rose in Q4 and second half of year. Long-haul iron ore and bauxite trade growth expected from Brazil and West Africa. 2025 had sub-3% net fleet growth for Capes, fourth straight year, global fleet average age rose to nearly 13 years, highest since 2010, low supply growth provides basis for positive view of dry bulk market.

Genco has a fleet consisting of 17 Capesize vessels, 15 Ultramax, and 11 Supramax vessels. In Q4 2025, it generated EBITDA of $42 million and TCE of $20,064 per day. Over the year, it invested $347 million in high-quality modern vessels, distributed $270 million in dividends, and paid down $249 million of debt. Q1 2026 is estimated to have a TCE of approximately $18,000 per day for 80% of the quarter, with over 50% year-over-year increase. Genco has one of the lowest cash flow breakeven rates in the peer group, related to industry low net loan-to-value and no mandatory debt amortization. Dividend was $0.50 per share in Q4, the highest in 3 years, and Q1 2026 is expected to have a higher dividend year-over-year. Fleet composition is balanced with 40% Capes and 60% Ultra Supras on vessel ownership, but 50% weighted towards Capesize vessels on net revenue over last 2 years. Pro forma 45 vessel fleet and Cape fleet provide significant operating leverage. Cash and debt positions as of Dec 31, 2025, were $55.5 million and $200 million, with undrawn revolver availability of $400 million.

• Estimated Q1 2026 TCE is approximately $18,000 per day for 80% of the quarter, over 50% year-over-year increase. Board expects higher dividend in Q1 2026 on a year-over-year basis. Anticipates vessel operating expense to marginally increase in Q1 compared to Q4 levels due to crew-related expenses timing but revert to Q4 levels moving forward. Plan to utilize $80 million accordion feature of existing $600 million credit facility and pledge 2 Newcastlemax vessels as collateral, increasing pro forma borrowing capacity to $680 million with expected post-acquisition debt outstanding of $330 million and undrawn borrowing capacity of $350 million.

• Geopolitical disruptions such as Russian-Ukraine situation and Red Sea issues could impact dry bulk shipping. For example, reopening of Black Sea could increase grains and iron ore, while Red Sea disruptions have minimal impact on dry bulk but are a factor in containers. Operating cost inflation, especially on crew side and spares/stores, which needs to be managed while keeping ships well maintained. Volatility in freight market persists despite low supply growth picture providing basis for positive view.

Q: Solid quarter. Obviously, John, yes, the dry bulk market ended '25 on a pretty strong note and as shown in your results, obviously. And so far this year, things are progressing quite nicely. You've upsized your facility by the $80 million, and you're going to take delivery of those 2 Newcastlemaxes next month. Obviously, you have plenty of flexibility. Asset values look like they're on the rise and -- or at least have risen a good amount here over the past few months. Where does that leave Genco kind of strategically? I know you touched on this a bit at the end of your comments, John, but how are you thinking about Genco strategically, capital allocation as we look ahead here for the rest of '26?

A: Look, in terms of the capital allocation, dividends and the value strategy is top of the list. We will endeavor to continue to cycle out some of the older vessels and redeploy those funds more modern fuel-efficient ships such as we've done or such as we did last year. So I don't think much has changed, but you're correct. Values continue to move up. We're actually in a situation where they're moving up almost weekly at this point, which is obviously very positive basis the timing of the acquisitions that we did last year. But it -- look, it makes newer tonnage more expensive, but it also makes our older tonnage more firm in what we can get. So dividends and value strategy is the first. And as part of that value strategy, we have a fleet replacement and growth element.

Q: And maybe just as a follow-up then, as we referenced asset values having risen. I wanted to ask sort of how are you thinking about the term charter markets? Or what are you seeing there? As we kind of think about it from, say, the crude tankers just as what we've seen there, VLCC values have risen and there's been a lot of charter interest. Are you seeing something similar in the Cape market? And how do you feel about deploying ships on term charter today?

A: I think -- well, there has not been as much liquidity in the dry bulk TC market, as you just mentioned, in the tanker sector. I think a lot of that has to do with the optimism as we look at the supply side and demand growth for the rest of 2026, but then certainly going into 2027 as West African iron ore really starts to ramp up. So I think it's more of a function of, I believe, owners not wanting to lock in currently because of the optimism, again, low supply demand growth coming. Having said that, there have definitely been some 1-, 3-year deals done. I think there was a 3-year deal done on a new -- at least 1, maybe 2 Newcastlemaxes from an iron ore major excess $30,000 a day. Those are firm rates. And clearly, the market is indicating a bullish stance and positive sentiment. You know that we, from time to time, have taken exposure off the table, particularly in the Capesize sector. We really do look at it as a portfolio approach. But we spend a lot of time and analysis looking at whether we want to lock in. And there could easily come a time this year where maybe we take some exposure off the table. But for the time being, we're going to continue to trade spot. And I think it's one of the unique things about Genco. We really only have 20% of this year fixed. So with a rising market, we are fully exposed -- 80% exposed to that positive market and sentiment.

Q: John, in the past discussions on asset acquisitions, you always like the flexibility of the Capes versus the Newcastlemaxes. Has there anything changed in trading patterns that makes you favor more of the Ultramaxes vis-a-vis a Cape?

A: I'm sorry, the Ultramaxes or the Newcastlemaxes?

Q: Newcastlemaxes, excuse me.

A: Yes. No. Okay. That's -- yes. No, I wouldn't say anything has drastically changed, though, certainly, on the Brazilian trade, those Newcastlemaxes have always been filled up to their capacity. Over the last several years, that may have not been true with Australia loadings, but that's really changed. And we certainly have seen the bauxite trade develop as well out of West Africa. So that bauxite can go on Newcastlemaxes. So we like the nucs we bought. We like our Capesize fleet. The Newcastlemaxes that we bought are no doubt premium earning assets with very high specifications and low fuel consumption. I think Bulkers 2020 did a fantastic job ordering and kitting out those ships. So we're very happy to be taking delivery of those. But we're going to continue to look at Capes and Newcastlemaxes. And that's where I think you'll see growth for us. And we'll stay steady with our Ultra Supramax fleet, probably do a little bit of fleet renewal on the Supras.

Q: Okay. Just as a follow-on, you just mentioned the Supras. Is there any opportunity or is there any interest in adding to that part of the fleet when you're discussing renewal? Or is it just sell the older vessels on elevated asset values?

A: Well, it certainly would be selling older vessels. Again, we're focused on the larger ships in terms of redeploying capital, though I'm not going to rule out that we wouldn't buy an Ultramax. I mean that market is doing pretty well. As you know, these are all correlated. It's just that Capes have certainly more upside potential based on higher beta and volatility. And if you look at, again, the supply side on the Capes is the most favorable in the dry bulk sector and demand growth that is coming is Newcastlemax and Capesize oriented.

Q: John, just on the back of Omar and Liam's questions around the S&P market, I just wanted to touch on -- last year, it was reported that a large number of Chinese buyers of dry bulk vessels were active in the market. I was wondering if you could comment, is that trend still continuing? And where do you see kind of the activity being driven in the S&P market for potential asset sales?

A: Yes. I think the Chinese continue to be very active. I would put them as the #1 buyer right now, particularly of older assets, not on the -- not necessarily on the modern eco side, but the older assets, they they're very active on. China is the largest importer of dry bulk commodities, right? So seeing the Chinese go long tonnage, I think that's a positive or a vote of confidence in the market going forward. And you've seen it across the board. I mean, they certainly have been active in older Capes, but they've also been buying some of the older Supramaxes as well. And I'm sure they see the same thing that we see. Again, the low supply growth on the Capes, the age of the fleet. And I think most importantly, there are additional cargo volumes that are going to be coming both on the bauxite side, but more importantly, on the iron ore front out of West Africa.

Q: Got it. Makes sense. My second question is just related to kind of reevaluating the geopolitical environment and the disruptions that we've seen across various shipping segments over the last few years. Where do things stand in terms of the disruption levels related to dry bulk? And let's say, if there was a reversal, whether it's the Red Sea or Russia, Ukraine, et cetera, where do you see kind of puts and takes around some of those themes?

A: Well, I mean, let's take the Russian-Ukraine situation. If there is a conclusion to that and the Black Sea reopens fully, clearly, that's potential for more grains and to a smaller degree, iron ore. So that would be a net positive for dry bulk shipping. In terms of the Red Sea, we're well aware that there are some container companies that have started operating through Suez and the Red Sea. We're still cautious and we're still not putting our ships through that area. But having said that, it's maybe 1% to 2% max in terms of number of ships that would actually go through the Red Sea. So deviating around Africa is -- it's not a big factor in dry bulk. It certainly is in containers, but it's not for dry bulk.

Q: A couple of questions on operating costs here. It looks like the cost of charter hire in Q4 roughly doubled sequentially. So I'm wondering, does the current strength in spot rates change how you think about augmenting your fleet with outside tonnage?

A: Well, in terms of -- again, in terms of growth, we're definitely focused on the larger ships. And hopefully, this is going to be answering your question. If it's not, please feel free to clarify. But when you look at where rates have really moved up, it is in the larger ships, which, again, that's been our strategy of growing that fleet since 2023. And you can definitely see that in the revenue side. It's driven quite a bit of the upside in revenues. Did that answer your question?

Q: I was asking about the chartered-in fleet.

A: Okay.

Q: Peter Allen: Yes. Sherif. Yes, in terms of the charter-in fleet, that is a very opportunistic part of the business. A lot of the times, the guys will take forward cargoes. And if it makes more sense in the moment to charter in a vessel to create an arbitrage, they'll do that. And that's something that the guys are -- have been really good over the years of assessing whether they can make, whether it's $100,000 plus on a particular cargo. A lot of the times in the first quarter, you'll see that because we'll book forward cargoes. The market will come off relative to Q4, and we'll be able to get that arb. But it's a very opportunistic play. Some quarters, you'll see higher than others. But certainly, in a strengthening market, being on the longer side and having the spot focus that we have is certainly where you want to be right now.

Q: John Wobensmith: What you're not going to see us do is speculative long-term time charter-ins. It will either be short term backed up by a piece of cargo, as Pete said, but we're not going to just go naked on chartering at Capesize or an Ultramax for that matter, long term into the company. That's not part of the strategy.

Q: Okay. Yes, that's very clear. And then just looking back at the presentation, Slide 8 highlights your remarkably stable cash breakeven, which has remained below $10,000 a day for a few years now. Is there anything you're doing, obviously, besides keeping leverage low to manage breakeven costs while some other owners have seen operating cost inflation?

A: Look, we've seen operating cost inflation. There's no doubt, particularly on the crew side and when you look at spares and stores just from an inflationary standpoint. We certainly manage to a budget that we set every year, though I want to emphasize, particularly with the larger ships, the bar keeps getting raised calling Australia. So we need to make sure that我们 are keeping our ships well maintained so that we do not have any issues trading anywhere in the world. So there is a little bit of inflation. We certainly manage and pay very close attention to OpEx, but we're not going to be penny-wise pound foolish.