DryShips, Inc.’s (DRYS) third-quarter earnings of 27 cents per share were 6 cents ahead of the Zacks Consensus Estimate. This excludes a loss of $39.3 million or 15 cents per share associated with the valuation of the company’s interest rate swaps. However, earnings were down substantially from $3.53 per share in the prior-year quarter.

GAAP net income for the quarter came in at $35.6 million or 12 cents per share, compared to $180.0 million, or $4.13 per share in the prior-year quarter.

The better-than-expected earnings were aided primarily by the performance of drilling and drybulk units at high utilization rates.

Revenues decreased 30.4% year-over-year to $228.2 million. An average of 38.5 vessels were operated for 3,492 voyage days during the third quarter of 2009 earning an average time charter equivalent rate of $32,887  per day. This compared to an average of 38.9 vessels operated for 3,564 voyage days during the third quarter of 2008 earning an average time charter equivalent rate of $63,947 per day.

For the drybulk carrier segment, net voyage revenues decreased to $114.8 million from $228.2 million in the prior-year quarter. The decrease was attributable to the substantially lower freight market during the third quarter of 2009 as compared to the year-ago quarter. For the offshore drilling segment, revenues from drilling contracts were $107.6 million, compared to $88.1 million in the prior-year period.

Total vessel and rig operating expenses and total depreciation and amortization decreased to $56.2 million and $49.4 million, respectively, from $58.3 million and $50.4 million, respectively, in the prior-year period. Total general and administrative expenses decreased to $22.9 million from $27.8 million in the prior-year quarter.

Interest and finance costs net of interest income decreased to $16.3 million, compared to $27.4 million in the prior-year quarter. The decrease was primarily attributable to decreased average interest rate levels during the third quarter of 2009.

DryShips has demonstrated significant growth and profitability in the recent years, but we do not expect this trend to continue in the near future as the global market turmoil is expected to stay for a while.

However, the company is taking strategic initiatives to hedge itself against the worldwide financial downturn. Also, Ocean Rig, with its expertise in deep water drilling and exploration, will provide a diversified asset base and revenue stream and facilitate the company’s strategy.

Nevertheless, changes in the value of the U.S. dollar could cause volatility in reported results, since DryShips generates its revenues in U.S. dollars but incurs a portion of vessel operating expenses in currencies other than U.S. dollars, particularly the Euro. As such we maintain our Neutral recommendation on the shares of DryShips.
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