Nordic American Tanker (NAT) Earnings Preview

Secondary Plays: TK, FRO, OSG

02/12/08 Update:
Nordic American Tanker misses by $0.05 (31.02 ) : Reports Q4 (Dec) earnings of $0.22 per share, excluding non-recurring items, $0.05 worse than the First Call consensus of $0.27. The average daily rate for our spot vessels was about $27,000 per day net to us during 4Q07 compared with $24,600 for 3Q07. Typically, when freight rates are increasing, as they did as from early December 2007 and towards the end of the year, a few weeks will elapse before this increase is translated into improved results for the Company as ships normally at any given point in time have employment a few weeks ahead. Conversely, in a decreasing spot market the freight income will be higher than the daily spot market rates for a while. Co expects that freight rates may continue to fluctuate significantly.

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Nordic American Tanker (NAT) is expected to report Q4 earnings 02/12 before the market opens, with a conference call at 12:00ET. NAT Consensus: First Call Q4 EPS of $0.27, revs of $30.7 mln.

Segment revenues: The co operates under one segment... The Co has only one type of vessel - Suezmax crude oil tankers - operating on time charter contracts at market related rates, in the spot market and on long-term bareboat contract. As of December 31, 2006, its fleet consisted of 12 double-hull suezmax tankers (11 of 12 of NAT's suezmax's tankers operate in the spot market), while the world's suezmax fleet stood at 352 vessels at the end of Q3. Note that spot chartering is common in the tanker industry. The co saw an improvement in the spot market during November, and, last quarter, the co said they were expecting freight rates to possibly continue to fluctuate significantly. In Q3, the co noted that The average spot market rate for modern suezmax tankers, according to the Imarex Tanker Index, was $17,645 per day for 3Q07 compared to $34,174 per day during 2Q07. The average rates for our spot vessels were about $24,600 per day net to us. This is important because, historically, the tanker markets have been volatile, and in the past, there have been periods when spot rates have declined below the operating cost of vessels.

Recent Earnings and Stock Action:
Q3 (11/5): NAT missed by $0.02, and missed on revs. The stock was down 2.6% on the results;
Q2 (8/9): NAT beat by $0.12, and beat on revs. The stock close slightly lower that day, declining three cents on those results;
Q1 (5/14): NAT beats by $0.02, and declared dividend. The stock closed higher by 1.5%;
Q4 (02/14/07): the co reported in-line, and beat on revs. On the results, shares fell 5.6%. In the last four quarters, the co's earnings results ranged from missing by $0.02 to beating by $0.12, but the co's stock has not seen large swings from reported results, excluding last year's Q4 move.
Three month average volume in the co's shares are ~358,000. And we'd like to note that, normally, tanker markets are stronger in the fall and winter months (the fourth and first quarters of the calendar year) in anticipation of higher oil consumption in the northern hemisphere during the winter months.

Areas of Focus on Call: The co's industry is really a supply and demand story. Listen for details on the industry's capacity situation; Listen for the co's Suezmax spot charter rates expectations going forward; co's expectations of shipyard deliveries vs crude tanker demand; single-hull vessels are expected to be phased out from the tanker trade by 2010 due to international legislation, which is expected to benefit the co, considering NAT owns double hull tankers. Listen for commentary on to what extent the co is benefiting from this development.

Stock Action: Since the co last reported on Nov 15, its stock is down 15.9%. Since the beginning of 2008, shares are down ~6.5%.

Teekay (TK) next earnings release Feb 20 after market, unconfirmed. Reuters Research estimate: 0.59. Frontline (FRO) next earnings release Feb 29 before market, confirmed. Reuters Research estimate: 0.35. Shipholding (OSG) next earnings release Feb 27 after market, unconfirmed. Reuters Research estimate: 0.61.

Definitions:
Spot voyages (vessels chartered on a dollars-per-day basis)
Time charters (vessels chartered for a fixed period)
Contracts of affreightment (COAs, where cargo is carried over aspecified trade route within a given time).
Suezmax is a naval architecture term for the largest ships capable of transiting the Suez Canal fully loaded, and is almost exclusively used in reference to tankers. Similar terms of Panamax, Malaccamax and Seawaymax are used for the largest ships capable of fitting through the Panama Canal, the Straits of Malacca and Saint Lawrence Seaway, respectively. Aframax tankers are those with a deadweight tonnage of 80,000 to 120,000.