Leading oilfield services’ company Weatherford International Ltd. (WFT) has reported second quarter 2011 adjusted earnings of 17 cents per share, beating the Zacks Consensus Estimate of 15 cents. The quarter’s results grew substantially from the year-earlier profit of 10 cents.
The outperformance was largely influenced by strong international business, despite a weak performance in Canada.
Total revenue expanded more than 25% year over year to $3,051.8 million, surpassing the Zacks Consensus Estimate of $2,898 million.
Operational Performance
North American revenue climbed 46.5% year over year to $1,344.2 million. Sequentially, revenue was down 1.2%. Stimulation and Chemicals, Artificial Lift and Well Construction made strong contributions in the quarter.
On a sequential basis, robust activity in the U.S. was offset by the seasonal impact on Canadian activity. The segment posted an operating income of $243.6 million compared with $127.0 million in the year-ago quarter.
Middle East/North Africa/Asia revenue upped 2.5% year over year and 7.3% sequentially to $617.4 million. Weather improvements in China and Australia and strong performance in Iraq were partially offset by the political turbulence in the Middle East and North Africa. The segment’s operating income plummeted nearly 54% year over year but climbed 214% sequentially to $33.9 million.
Europe/West Africa/FSU posted revenue of $592.5 million, up more than 17% year over year and 16% sequentially. The segment’s operating income shot up 37.3% year over year and 146.7% on a sequential basis to $92.5 million. The winter effect moderated in the region and North Sea, Russia and Caspian showed strong performance.
Latin American revenue climbed 21.2% year over year and 21.5% sequentially to $497.7 million, aided by Argentina, Columbia and Venezuela. Operating income from this segment was $51.1 million, up 21.6% from the year-ago quarter and 142.2% from the previous quarter.
Liquidity
Weatherford had $329.6 million in cash and cash equivalents at the end of the quarter. As of June 30, 2011, the company’s long-term debt was $6,256.7 million, representing a debt-to-capitalization ratio of 38.7% (versus 40.2% in the preceding quarter). Weatherford spent approximately $387.6 million in capital expenditures during the quarter.
Guidance
Weatherford guided third quarter 2011 earnings per share in the range of 24 cents to 26 cents, before adjusting for one-time items. Furthermore, the company foresees a seasonal recovery in Canada and gradual improvement in North America and international markets throughout 2011. Revenue growth was estimated at approximately 25%, higher than 20% estimated in the last quarter.
Weatherford also expects volumes and pricing to rise in the international markets, especially in the fourth quarter of 2011, which in turn will add to its margins for the full year. Management expects 2011 margins to be considerably better than 11% in 2010.
Our Recommendation
Although we remain optimistic on Weatherford’s operational and financial leverage to international growth in 2011, the ongoing political and weather turmoil and related impacts on the company’s results raise apprehensions.
Moreover, Weatherford’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 also causes of concern.
Consequently, our long-term Neutral recommendation remains unchanged at this stage.
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