13 August 2009

PRGN: Income Statement Analysis for the June 2009 Quarter

Paragon Shipping, Inc., (NASDAQ: PRGN) earned $0.48 per share in the three months that ended on 30 June 2009, down from $0.91 in the second quarter of last year.  The company trumpets that net income adjusted to exclude various non-cash items increased from $0.49 to $0.51 per share.

Headquartered in Greece and operating since December 2006, Paragon owns and charters ships that carry dry bulk cargoes.  Chairman and CEO Michael Bodouroglou also controls the company, Allseas Marine S.A., that Paragon pays to manage its fleet.

This post examines the Income Statement for the quarter.  We did not issue a "look-ahead" estimate in advance of the earnings release.

In a second article, we will provide the latest figures for the financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

Our sources were the earnings announcement and the separately released Management's Discussion and Analysis.

e click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

Revenue (after commissions totaling 5.2 percent) in the June 2009 quarter was 3.7 percent greater than in the second quarter of 2008.  The average daily revenue per vessel (time charter equivalent) fell 5.6 percent, but Paragon operated one more vessel in the recent period.

We group the Voyage expenses, Vessel operating expenses, and Dry-docking expenses reported by Paragon, and we call the result the Cost of Goods Sold.  CGS was 12.3 percent of Revenue, which translates into a Gross Margin of 87.7 percent, in the June 2009 quarter.  The Gross Margin was 85.7 percent in last year's second quarter. 

The improved Gross Margin was largely due to a reduction in Dry-docking expenses.  This cost was cut from $510 thousand, which was used last year for dry docking of two vessels, to only $25 thousand.  Vessels this year were inspected in lieu of dry docking.

Because the Paragon owned an additional vessel in 2009, Depreciation expenses rose from 20.3 percent of Revenue last year to 21.6 percent.

Sales, General, and Administrative (SG&A) expenses, in which we include management fees, were 4.7 percent of Revenue.  These expenses were 6.5 percent of Revenue last year. 

The management fee was $746 per day per vessel in the second quarter, plus reimbursements for legal, accounting, and financial services.

G&A costs were cut from $1.6 million to $1.0 million.

Paragon recorded an asset impairment charge of $6 million on one vessel, the Handymax bulk carrier MV Blue Seas, which will be sold for $17.55 million (less a 3 percent commission) later this year.   The Blue Seas must have been carried on Paragon's books for $23.9 million prior to the (25 percent, give or take) impairment charge. 

No other vessel in the fleet was deemed impaired by Paragon, but it would be reasonable to suspect a general decline in valuations.

The impairment charge was the main reason Operating Income fell 17 percent to $18.9 million.  Excluding the charge, Operating Income would have risen about 8 percent. 

Other expenses of $3 million brought Net Income to $15.8 million ($0.48 per share), compared to $24.6 million ($0.91 per share).

Paragon paid no income taxes in either period.

Full disclosure: Long PRGN at time of writing.

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