SFL Corporation’s Earnings Call: Balancing Challenges and Resilience

Sfl Corporation Limited ((SFL)) has held its Q1 earnings call. Read on for the main highlights of the call.

SFL Corporation Limited’s recent earnings call presented a mixed sentiment, balancing between consistent dividend payouts and a strong charter backlog against the backdrop of financial challenges and market volatility. Despite a net loss due to impairments and idle assets, the company showcased resilience through its operational improvements and strategic planning.

Consistent Dividend Payout

SFL Corporation announced its 85th consecutive dividend of $0.27 per share, marking a significant milestone in returning over $2.8 billion to shareholders over 85 quarters. This consistent payout represents a yield of approximately 13% based on the current share price, underscoring the company’s commitment to rewarding its investors despite the challenging financial landscape.

Strong Charter Backlog

The company boasts a robust charter backlog of $4.2 billion, with more than two-thirds of this secured from customers with investment-grade ratings. This substantial backlog provides SFL with unique cash flow visibility and resilience, positioning the company well to navigate through market uncertainties.

High Fleet Utilization

SFL reported an impressive overall fleet utilization rate of 98.6%, with the shipping fleet achieving 99.8% utilization. This high level of efficiency highlights the quality of SFL’s vessel management and operational capabilities, contributing positively to its financial performance.

Operational Improvements and Upgrades

The quarter saw several vessels upgraded, enhancing cargo intake and fuel efficiency. These improvements have led to higher charter extensions, reflecting positively on SFL’s strategic initiatives to optimize its fleet operations.

Net Loss for the Quarter

Despite operational successes, SFL recorded a net loss of $32 million or $0.24 per share. This loss was primarily due to impairments on older dry bulk vessels and the idle status of the Hercules rig, which have been significant financial burdens.

Impairments on Dry Bulk Vessels

The company faced impairments amounting to $34 million, driven by challenges in securing new long-term charters for older vessels amidst market volatility and recession fears. This has been a critical area of concern impacting SFL’s financial health.

Hercules Rig Idle

The Hercules rig has remained idle since Q4 2024, with ongoing market turmoil and oil price volatility delaying new employment opportunities. This situation has adversely affected SFL’s financial results, highlighting the challenges in the drilling sector.

Impact of New Tariffs

Newly imposed U.S. tariffs on Chinese-built and operated ships are set to impact approximately 27 vessels in SFL’s fleet, primarily affecting car carriers and tankers. The company plans to mitigate these costs by passing them onto charters, although this remains a significant operational challenge.

Forward-Looking Guidance

Looking ahead, SFL Corporation provided guidance for the first quarter of fiscal year 2025, with projected revenues of $193 million and an EBITDA equivalent cash flow of $116 million. Despite ongoing challenges, the company maintains a solid liquidity position with $174 million in cash and plans to continue investing in accretive assets. SFL’s strategic focus on capital allocation, including a $10 million share repurchase, underscores its commitment to enhancing shareholder value.

In conclusion, SFL Corporation’s earnings call reflected a cautious yet resilient outlook. While the company faces significant financial and strategic challenges, its strong charter backlog, high fleet utilization, and consistent dividend payouts provide a foundation for navigating market volatility. The forward-looking guidance suggests a strategic focus on maintaining liquidity and operational efficiency, positioning SFL for potential recovery and growth.