Ensco plc (ESV) reported first quarter 2011 earnings of 45 cents per share from continuing operations. Result came in well below the year-ago quarter’s earnings of $1.12 per share and missed the Zacks Consensus Estimate of 47 cents, mainly due to lower dayrates and utilization.
Ensco’s total revenue was $361.5 million in the reported quarter, ahead of the Zacks Consensus Estimate of $359 million but 19% below the year-ago quarter’s revenue of $448.6 million.
Segment Performance
Jackup: Revenues from the Jackup fleet totaled $263.3 million, down 17% from the year-earlier level. The decline was mainly due to a fall in the average dayrate to $96,766 from $111,706 recorded in the year-earlier period. Overall jackup utilization also decreased substantially to 72% from 79% in first quarter 2010.
In the North and South America jackup market, dayrates dropped to $84,060 from $88,098 in the year-ago quarter. Utilization in this market plunged to 86% from 93% in the year-earlier quarter.
Rig utilization in the Europe/Africa region declined to 54% from 68% in the year-earlier quarter. The average day rate was down almost 10% from the year-earlier level at $127,617.
In the Asia-Pacific region, jackup rig utilization was 72%, down from 75% in the year-ago quarter. Average day rate also decreased 19% year over year to $94,625.
Deepwater: The segment’s revenue decreased 25% from the year-earlier level to $98.2 million. Rig utilization in this segment declined to 77% from 99% in the year-earlier quarter. Dayrate also plummeted to $304,220 from the year-earlier level of $411,090.
Balance Sheet
At the end of the quarter, Ensco had $3,432.1 million in cash and long-term debt of $257.3 million (debt-to-capitalization ratio of 4.12% versus 3.87% in the previous quarter).
Outlook
We appreciate Ensco’s financial discipline, attractive dividend yield and organically developed asset base. International deepwater market opportunities are stepping up aided by new multi-year programs in West Africa, SE Asia, Brazil and the Mediterranean. This should eventually be accretive to the company’s earnings.
Moreover, we foresee substantial earnings visibility for Ensco following the merger with Pride International (PDE). The combined company is expected to benefit from the international jackup market recovery coupled with continued strength in the deepwater market.
Management also remains optimistic about the broader recovery in jackup demand, particularly in North Sea and Mexico, accompanied by the recent positive contracts worldwide and continued increase in tender activity.
However, we believe the increased supply of high-spec rigs is likely to put pressure on utilization for standard jackups in the long run. We currently maintain our long-term Neutral recommendation for Ensco shares.
ENSCO PLC (ESV): Free Stock Analysis Report
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