Weatherford Misses Consensus - Analyst Blog
24 Abril 2012 - 5:45AM
Zacks
Leading oilfield services’
company Weatherford International Ltd.’s
(WFT) first quarter 2012 adjusted earnings of 25 cents per share
came in below the Zacks Consensus Estimate of 28 cents. However,
the results jumped substantially from the year-earlier earnings of
7 cents, mainly on positive contributions from all its
segments.
Total revenue increased 26% year
over year to $3,599.0 million, but failed to meet the Zacks
Consensus Estimate of $3,664.0 million.
Operational
Performance
North American
revenue climbed almost 30% year over year and 3% sequentially to
$1,754.0 million. Artificial Lift, Wireline and Completions made
strong contributions. However, these positives were partly tempered
by the performance of Stimulation, Drilling Tools and Fishing,
which were adversely affected by the timid natural gas environment.
The segment posted an operating income of $359 million compared
with $283.0 million in the year-ago quarter.
Middle East/North
Africa/Asia revenue increased 5% year over year to $605.0
million. However, sequentially, it declined with decreases in
Completions and Wireline as well as the expected seasonality in
China. The segment’s operating income jumped substantially to $48.0
million from the year-ago level of $10.0 million.
Europe/SSA/FSU
posted revenue of $569.0 million, up more than 11% year over year.
The segment’s operating income shot up 50% year over year to $60.0
million. Although the segment registered a year-over-year jump, it
experienced a sequential drop in revenue as well as in the
operating income owing to the normal winter seasonality in the
North Sea and Russia.
Latin American
revenue surged 64% year over year to $671.0 million. However, it
dropped 8% from the preceding quarter. Operating income expanded
significantly to $87.0 million from the year-ago level of $21.0
million.
Liquidity
As of March 31, 2012, Weatherford
had $339 million in cash and cash equivalents and long-term debt
was $5,989.0 million, representing a debt-to-capitalization ratio
of 37.6% (versus 39.7% in the fourth quarter of 2011). Weatherford
spent approximately $483.0 million in capital expenditures during
the first quarter of 2012. The company had earlier highlighted that
it expects to spend between 10% and 15% of its revenues over this
year.
Guidance
The company expects its second
quarter 2012 adjusted earnings per share between 24 cents and 26
cents. With respect to 2012, the company maintained a positive but
careful outlook for its North American business. The company
believes that the depressed natural gas environment will likely be
overshadowed by the predominance of oil activity in Canada and the
U.S. and anticipates modest revenue and operating income growth
compared with 2011.
Weatherford foresees sustained
growth and expanding margins in its Latin America region,
underpinned by improvements in Brazil, Colombia, Mexico and
Venezuela.
The company also expects
improvements in the Eastern Hemisphere in 2012, with increases in
Europe and Russia, as well as stronger activity levels in Iraq,
Kuwait and Saudi Arabia, Australia and China. Weatherford also
expects continued recovery in the Middle East/North Africa/Asia
Pacific region aided by contributions from the completion of
hostile as well as fresh contracts with healthier terms and pricing
in the second half of 2012.
The effective tax rate is expected
to be approximately 35% for this year.
Our
Recommendation
Although we remain optimistic on
Weatherford’s operational and financial leverage to international
growth in 2012, the company’s debt-heavy balance sheet, its weak
capability to generate free cash flow as well as competition from
larger peers such as Schlumberger Limited (SLB)
are causes of concern.
Weatherford holds a Zacks #3 Rank,
which translates into a Hold rating for a period of one to three
months. Consequently, our long-term Neutral recommendation remains
unchanged at this stage.
The world’s largest oilfield
services provider, Schlumberger, recentlyreported first quarter
2012 earnings of 98 cents per share (excluding special items),
beating the Zacks Consensus Estimate by a penny. The quarter’s
results also showed a steady improvement from the year-earlier
profit of 71 cents per share. The year-over-year increase was aided
by strong performance in global exploration and deepwater activity
as well as efficiency in operations.
SCHLUMBERGER LT (SLB): Free Stock Analysis Report
WEATHERFORD INT (WFT): Free Stock Analysis Report
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