SLB Schlumberger Ltd

Leading oilfield services company, Weatherford International Ltd.’s (WFT) first-quarter 2013 adjusted earnings of 15 cents per share came in at par with the Zacks Consensus Estimate. The results also dropped substantially from the year-earlier adjusted earnings of 25 cents. The earnings declined mainly due to the weakness in North American earnings.

The total revenue in the first quarter increased by nearly 7% year over year to $3,837.0 million from $3,591 million in prior-year quarter but missed the Zacks Consensus Estimate of $3,878 million.

Operational Performance

North American revenues decreased 3.5% year over year to $1,692.0 million. The relative decline in the U.S. land rig count compared to the first quarter of 2012 as well as oversupply of hydraulic fracturing capacity resulted in the loss. The Stimulation and Chemicals segment was also weak, with operating income of $224.0 million compared with $358.0 million in the year-ago quarter.

Middle East/North Africa/Asia revenues climbed 31.9% year over year to $785 million. The segment’s operating income plunged 15.1% year over year to $45 million. The decline is attributable to typical seasonal effects in Asia.

Europe/Sub-Sahara Africa/Russia posted revenues of $633.0 million, up 10.9% year over year. The segment’s operating income dropped marginally by 1.5% year over year to $65.0 million.

Latin American revenues climbed 8.3% year over year to $727.0 million. Operating income from this segment rose to $98.0 million from the year-ago level of $83.0 million.

Liquidity

As of Mar 31, 2012, Weatherford had $286 million in cash and cash equivalents and long-term debt was $7,032 million. Weatherford spent $400 million in capital expenditures during the quarter.

Guidance

With respect to the second half of 2013, the company maintains a neutral outlook for its North American business and expects moderate growth in revenues and operating income.

Weatherford foresees sustained growth and expanding margins in its Latin America region, supported by improvements in Argentina and Mexico.

The company also expects improvements in the Eastern Hemisphere in 2013, with upside in Europe, Sub-Saharan Africa and Russia, as well as stronger activity levels in the Middle East, North Africa and Asia-Pacific.

The annual effective tax rate in 2013 is expected to be about 34%.

Our Recommendation

We remain optimistic on Weatherford’s operational and financial leverage to international growth in 2013. However, Weatherford’s debt-heavy balance sheet, weak free cash flow and competition from larger peers such as Schlumberger Limited (SLB) are causes of concern.

Weatherford holds a Zacks Rank #3 (Hold). However, there are other stocks in the oil and gas sector – Newpark Resources Inc. (NR) and EPL Oil & Gas, Inc. (EPL) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.
 

 
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