Nabors Industries Ltd. (NBR: 23.08 -0.78 -3.27%) reported better-than-expected fourth-quarter results on the back of strong activity in US Offshore, US Lower 48 Land Drilling and Well Servicing operations and seasonal ramp-ups in Alaska and Canada. Earnings per share, excluding non-cash items, came in at 18 cents, beating the Zacks Consensus Estimate by a penny.
Estimate Revisions Trend
With improving oil prices and increasing drilling activity, we see a positive trend in estimate revisions. For the last 30 days, 5 of the 25 analysts covering the stock raised estimates for the full fiscal 2010 while no one moved in the opposite direction. No up and downside movements were noticed in the last 7 days. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $1.09 per share, which is well below the full fiscal 2009 earnings of $1.29.
The company’s earnings surprise for the preceding four quarters varies between a negative 6.3% and a positive 14.3%, with the average being a positive 6.1%.
Revenue & Profitability
Compared to the fourth-quarter of 2008, Nabors’ adjusted earnings per share declined 75.3% (from 73 cents to 18 cents) due to persistent weakness in its North American gas-centric businesses combined with poor international results. Revenues were down more than 45% to $679 million as sales declined in all of the company’s segments.
Nabors’ main operating segment is ‘Contract Drilling’, which accounts for the bulk of its revenues and operating earnings. Its operations are spread across 6 sub-segments: U.S. Lower 48 Land Drilling, U.S. Well Land Servicing, U.S. Offshore, Alaska, Canada, and International.
Contract Drilling Segment: Analysis
During the quarter, contract drilling revenues were down 42.8% year over year to $760 million, while the segment’s operating income declined approximately 60% to $154.3 million. The negative comparison reflects lower activity levels during the quarter, which was down 41.7% to 262.8 rig years.
While there were sequential signs of improvement in terms of revenue and profitability, U.S. Lower 48 Land Drilling and the U.S. Land Well Servicing sub-segments suffered year-over-year due to significant contraction in rig activity.
In Canada, revenues were down nearly 38% to $81.2 million and the company saw a thin profit on the back of seasonally-high fourth quarter.
Regarding international operations, revenues and operating income were down year over year. Revenue and operating income for Nabors’ U.S. offshore operations were significantly lower than the year-ago quarter due to a continued slump in drilling activity that led to a 52% dip in activity levels.
Though revenue was down on a year-over-year basis, Alaska was the only sub-segment which posted an increase in operating income driven by seasonal ramp-up in activity levels.
Balance Sheet
At the end of the quarter, the company had approximately $1.1 billion in cash and short-term investments and $4.1 billion in long-term debt, with a net debt-to-capitalization ratio of approximately 44.2%.
Outlook
While the company’s international operations have been suffering since the past few quarters, management said the situation can change from second quarter onwards on the back of increasing trend in rig count and oil prices. With more than one-third of the company’s total 2009 revenue coming from international operations, we believe that the recent uptick in operational momentum and contract awards will surely help Nabors to add numbers to the bottom line.
Nabors competes with sector leaders like Transocean Ltd. (RIG: 84.13 +1.28 +1.54%), Diamond Offshore Drilling Inc. (DO: 87.82 +0.09 +0.10%) and Noble Corp. (NE: 41.80 +0.17 +0.41%). While we like Nabors’ initiatives to fund growth opportunities with its cash balance and internal cash flows, its fairly debt-heavy balance sheet remains our concern. At a time when peers are returning cash to shareholders via lucrative dividends, Nabors is lagging. As such, we are currently Neutral on Nabors shares.
Estimate Revisions Trend
With improving oil prices and increasing drilling activity, we see a positive trend in estimate revisions. For the last 30 days, 5 of the 25 analysts covering the stock raised estimates for the full fiscal 2010 while no one moved in the opposite direction. No up and downside movements were noticed in the last 7 days. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $1.09 per share, which is well below the full fiscal 2009 earnings of $1.29.
The company’s earnings surprise for the preceding four quarters varies between a negative 6.3% and a positive 14.3%, with the average being a positive 6.1%.
Revenue & Profitability
Compared to the fourth-quarter of 2008, Nabors’ adjusted earnings per share declined 75.3% (from 73 cents to 18 cents) due to persistent weakness in its North American gas-centric businesses combined with poor international results. Revenues were down more than 45% to $679 million as sales declined in all of the company’s segments.
Nabors’ main operating segment is ‘Contract Drilling’, which accounts for the bulk of its revenues and operating earnings. Its operations are spread across 6 sub-segments: U.S. Lower 48 Land Drilling, U.S. Well Land Servicing, U.S. Offshore, Alaska, Canada, and International.
Contract Drilling Segment: Analysis
During the quarter, contract drilling revenues were down 42.8% year over year to $760 million, while the segment’s operating income declined approximately 60% to $154.3 million. The negative comparison reflects lower activity levels during the quarter, which was down 41.7% to 262.8 rig years.
While there were sequential signs of improvement in terms of revenue and profitability, U.S. Lower 48 Land Drilling and the U.S. Land Well Servicing sub-segments suffered year-over-year due to significant contraction in rig activity.
In Canada, revenues were down nearly 38% to $81.2 million and the company saw a thin profit on the back of seasonally-high fourth quarter.
Regarding international operations, revenues and operating income were down year over year. Revenue and operating income for Nabors’ U.S. offshore operations were significantly lower than the year-ago quarter due to a continued slump in drilling activity that led to a 52% dip in activity levels.
Though revenue was down on a year-over-year basis, Alaska was the only sub-segment which posted an increase in operating income driven by seasonal ramp-up in activity levels.
Balance Sheet
At the end of the quarter, the company had approximately $1.1 billion in cash and short-term investments and $4.1 billion in long-term debt, with a net debt-to-capitalization ratio of approximately 44.2%.
Outlook
While the company’s international operations have been suffering since the past few quarters, management said the situation can change from second quarter onwards on the back of increasing trend in rig count and oil prices. With more than one-third of the company’s total 2009 revenue coming from international operations, we believe that the recent uptick in operational momentum and contract awards will surely help Nabors to add numbers to the bottom line.
Nabors competes with sector leaders like Transocean Ltd. (RIG: 84.13 +1.28 +1.54%), Diamond Offshore Drilling Inc. (DO: 87.82 +0.09 +0.10%) and Noble Corp. (NE: 41.80 +0.17 +0.41%). While we like Nabors’ initiatives to fund growth opportunities with its cash balance and internal cash flows, its fairly debt-heavy balance sheet remains our concern. At a time when peers are returning cash to shareholders via lucrative dividends, Nabors is lagging. As such, we are currently Neutral on Nabors shares.
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