Navios Maritime Holdings (NM) shares have been trading as if the enterprise were sinking fast, but this morning's earnings release showed the company is on an even keel. Naval references aside, it's clear Navios has the financial wherewithal to survive the brutal plunge in freight rates for dry bulk ships. NM shares were falling hard into today's earnings release, but the shorts' worst fears were not realized, and Navios Holdings shares have bounced 20% today in a relief rally.
Navios posted EBITDA of $45.4 million for the quarter, a 73% year-on-year increase. The key to analyzing Navios Maritime Holdings is the last word -- holdings. While Navios' dry bulk ships suffered under a first quarter that saw the Baltic Dry Index (BDI) fall to an all-time low of 290, the company's 64%-owned South American Logistics business posted a 35% percent gain in EBITDA for the quarter, driven by strong results from its barging business in the Hidrovia region.
Historically, Navios Holdings has supported its corporate family members -- Navios Maritime Partners (NMM), Navios Acquisition (NNA), Navios Midstream Partners (NAP), Navios South American Logistics -- with working capital support. Also, Holdings has chartered-in boats owned by Partners, a more direct form of intrafamily support.
On this morning's conference call, CEO Angeliki Frangou noted that working capital support was no longer needed by Holdings' affiliate companies. Also, Holdings generated a $14.9 million gain in the quarter from ending certain charter commitments, and many of Holdings' charters of Partners' boats have expired in the first part of 2016.
Simple, isn't it? Well, it never is with Navios, but the key takeaway is that the parent, Navios Maritime Holdings, survived the worst quarter in the recorded history of dry bulk shipping and exited the quarter with $157 million in cash on its balance sheet.
In the short term, Navios Holdings' common shares, NM, are going to be buffeted by a host of factors -- including a commercial dispute with Vale (VALE) over a port being constructed by the company's South American Logistics business and what looks to be a seasonal slowdown in the BDI, fixed at 605 today, down from the recent high of 720, set in late April.
Longer term, however, the business is viable and on today's trading, I've been taking some profits in NM common with an eye toward adding to my position in Navios Holdings' Series G preferred.
Yes, NM-G is my Real Money Best Idea and as of 3 p.m. ET yesterday, but it wasn't looking so hot (note that the quotes on the RM Best Ideas scoreboard are a day behind real time). This morning's release showed that bankruptcy fears at Navios were overblown, however, and even as NM-G shares trade up by 25% today, I think there is still extreme value there at 15 cents on the dollar.
What I've learned in following preferreds through the commodities (and commodity shipping) meltdown is that investors don't care whether dividends are paid or not (Navios last paid preferred dividends in January). No, as with the Series A preferreds of Gastar Exploration (GST) -- which were the subject of my first Real Money column three years ago and have recovered to 35 cents on the dollar today from the February low of 11 cents on the dollar -- investors are using deeply discounted preferreds as a call option on recovery. It's happening in oil, and that is a positive sign for companies involved in any aspect of the commodities trade, including Navios. So, NM-G is still a good buy here.