The Curious Case Of Navios Holdings: Inconsistency In Headline Earnings Reporting

| About: Navios Maritime (NM)

In a recent article on Navios Maritime Acquisition (NYSE:NNA) I touched upon the Navios Group earnings press releases, half-jesting that one never sees the actual earnings in the headlines but has to read through to the fourth paragraph of the main body of the release in order to find if the company made any money (under poor GAAP). I don't want to relay false information so I thought I would go back and check if my impression was correct.

Navios Maritime Holdings (NYSE:NM), a dry-bulk vessel owner and operator, heads the Navios shipping group which for the moment also includes tanker owner NNA and its sibling, distribution-focused Navios Maritime Partners (NYSE:NMM). Navios Holdings reported its Q3 results before the market opened on November 17, and sure enough, I had to scroll down a couple of screen pages in order to be assured that the company earned a quite decent $0.16 per share for the quarter (NM closed the day at $3.78).

Why bury the seemingly good numbers? Well, in Q3 2010 NM earned $0.18 per share. And after having revisited the earnings releases of the last two years, it is obvious that the company prefers, almost pathologically, to see the bright side of life when reporting headline numbers with no desire to provide negative comps.

The table below reproduces the headline numbers on NM's press releases since Q3 2009, with some added comments. I exclude instances (actually only one) where the headlines include metrics referring to periods longer than the relevant quarter.


NM Press Release Headlines

Comments on Metrics

Q3 2009

- 74.1% increase in adjusted EBITDA to $55.7 million for the third quarter of 2009

Adjusted EBIDTA/Y-o-y comparison

Q4 2009

- 99.4% increase in quarterly adjusted EBITDA to $51.3 million

- 350.9% increase in quarterly adjusted net income to $10.5 million

- Basic EPS of $0.12 for Q4 2009

- Dividend of $0.06 per share for Q4 2009

Adjusted EBIDTA/Y-o-y comparison - nice and steady

Adjusted net income/Y-o-y comparison - of 350.9%?

Basic EPS – Great


Q1 2010

- 84.2% increase in quarterly EBITDA to $78.1 million

- 160.8% increase in quarterly net income to $31.3 million

- Basic EPS of $0.31 for Q1 2010
- Dividend of $0.06 per share for Q1 2010

EBIDTA/Y-o-y comparison – not adjusted anymore, need to look what was in or out

Net income/Y-o-y comparison – as above

Basic EPS – Excellent


Q2 2010

- 110.1% increase in Q2 net income to $46.5 million
- 70.4% increase in Q2 EBITDA to $91.0 million
- 109.1% increase in Basic EPS of $0.46 for Q2 2010
- Dividend of $0.06 per share for Q2 2010

Net Income/Y-o-y comparison

EBIDTA/Y-o-y comparison

Basic EPS – Excellent


Consistency over the last three quarters

Q3 2010

- Dividend of $0.06 per share for Q3 2010

- Q3 Net Income excluding Navios Acquisition of $18.7 million

- Q3 EBITDA excluding Navios Acquisition of $63.3 million

We start off with the Dividend from now on

Net Income excluding a subsidiary/No y-o-y comparison

EBIDTA excluding a subsidiary/No y-o-y comparison

Q4 2010

- Dividend of $0.06 per Share for Q4 2010

- Q4 Net Income Excluding Navios Acquisition of $57.5 Million Q4

- EBITDA Excluding Navios Acquisition of $106.3 Million


Net Income excluding a subsidiary/No y-o-y comparison

EBIDTA excluding a subsidiary/No y-o-y comparison

Q1 2011

- Dividend of $0.06 per Share for Q1 2011

- Q1 Adjusted EBITDA Excluding Navios Acquisition of $67.5 Million

- Q1 Adjusted Basic EPS Excluding Navios Acquisition of $0.19


Adjusted EBIDTA excluding a subsidiary/No y-o-y comparison

Adjusted Basic EPS excluding a subsidiary

Q2 2011

- Dividend of $0.06 per Share for Q2 2011

- 9.1% Increase in Q2 Net Income to $50.9 Million

- 8.7% Increase in Basic EPS of $0.50 for Q2 2011

- 13.9% Increase in Q2 EBITDA to $103.7 Million


Net Income/Y-o-y comparison

Basic EPS/Y-o-y comparison

EBITDA/Y-o-y comparison

Q3 2011

- Dividend of $0.06 per share for Q3 2011

- 7.2% increase in Q3 revenue to $173.8 million

- 6.2% increase in Q3 EBITDA to $67.3 million


Revenue/Y-o-y comparison

EBIDTA/Y-o-y comparison

So first of all, I have to admit that my impression was indeed wrong: Navios Holdings does feature earnings per share and net income in its releases intermittently but relatively regularly. But you see why: There is no consistency in the headline numbers.

Going over the table one cannot help but wonder whether these inconsistent but always encouraging metrics reveal a tendency to hide the not-so-good news under the rug. For example, Navios Holdings tends to sell vessels with long-term charters attached to NMM, the latter typically paying for them with money raised in secondary offerings. The NM capital gains on the vessels are considered ordinary income, and it so happens that whenever Net Income is reported, there have been such capital gains more often than not – there are no “adjustments” even if a large part of the earnings is capital gains - and the y-o-y increase in EBIDTA and Net Income is very much highlighted.

Conversely, it there are no such sales in the quarter, the focus tends to be on adjusted EBITDA, EBIDTA excluding NNA, or, in Q3 2011, increase in revenue (honestly, revenue?) This is quite obvious in the comparison between 2011 Q2 and Q3. If there is an y-o-y increase in any metric (especially Net Income boosted by capital gains), it makes the headline. If not, the comp is not mentioned and even the metric may be relegated to the third page. This is what happened to the EPS number this quarter.

Navios is a very ambitious and quite transparent group with a focus on raising capital in both the equity and the debt markets, so the selling angle is obvious. Their presentations are extensive and meticulous, even though they must be parsed carefully. Navios Holdings has also many moving parts, first having to consolidate NNA because of an adverse SPACmail and warrant exchange process, then artificially de-consolidating it for accounting purposes. So some adjustments to its financial results should be expected.

But as a retail investor, I feel both lost and somewhat taken aback when any company starts playing with the headline numbers with the obvious objective to influence the newswires. Lost because even if I will always read the full results of a company I'm interested in, I don't know what the company is suggesting that I focus on; taken aback because I then start to feel that the company considers I am gullible enough to be happy with the headlines.

A silly gripe, many might say, and it may be the fault of the investor relations people. But a serious company should not be afraid to use consistent, transparent headline numbers and metrics. Teekay Corporation (NYSE:TK) for example, a company heading a group with more moving parts than a Patek Philippe Calibre 89, consistently highlights cash-flows and adjusted earnings/loss per share (including immediate GAAP information) as preferred metrics, quarter after quarter. Navios Holdings and the Navios group companies should adopt a similar consistency.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.