Contract drilling services provider Helmerich & Payne Inc. (HP) reported strong earnings for the third fiscal quarter of 2013 (three months ended Jun 30, 2013), driven by robust offshore and international land drilling businesses.
Earnings per share from continuing operations (excluding special items) came in at $1.44, comfortably surpassing the Zacks Consensus Estimate of $1.35 and the year-ago adjusted profit of $1.37.
The latest beat marks Helmerich & Payne’s fifth outperformance in as many quarters. It is also as per our expectation, due to the combination of Helmerich & Payne’s Zacks Rank #3 (Hold) and +0.74% ESP (Read: Zacks Earnings ESP: A Better Method).
Earlier this week, Helmerich & Payne’s direct rival Nabors Industries Ltd. (NBR) missed earnings forecasts, hamstrung by weakness in its North American operations.
Revenues of $840.2 million were up 2.5% from the third quarter 2012 but came under the Zacks Consensus Estimate of $846.0 million amid lower contribution from U.S. land drilling business.
Segment Performance
U.S. Land Operations: During the quarter, operating revenues totaled $695.8 million (83% of total revenue), down 1.6% year over year. Average rig revenue per operating day was $28,160, almost flat from the year-ago period. Utilization levels fell to 83% (from 89% in the third fiscal quarter of 2012). Nevertheless, segment operating income improved slightly (by 0.3%) from the year-earlier quarter to $236.4 million, as average rig margin per day increased 4.4% to $15,414.
Offshore Operations: Helmerich & Payne’s offshore revenues were up 29.4% year over year to $53.9 million. Daily average rig revenue increased 23.9% to $61,380, while average rig margin per day jumped 48.6% to $25,108. This drove up the segment operating income 82.9% from the previous year period to $14.1 million, further helped by the improvement in rig utilization that went up to 89% for the period, against 74% a year ago.
International Land Operations: Helmerich & Payne’s international land operations recorded revenues of $87.0 million, up from $67.5 million in the previous-year quarter. Average daily rig revenue was $35,955, up 7.8%, while rig margin per day was $8,591, against $7,704 in the year-ago period.
As a result, segment profitability took an upward trajectory, reaching $8.5 million, compared to $6.3 million in the third quarter of fiscal 2012. Moreover, activity levels rose to 80% from 77% a year ago.
Capital Expenditure & Balance Sheet
During the quarter, Helmerich & Payne spent approximately $180.1 million on capital programs. As of Jun 30, 2013, the company had approximately $480.5 million in cash, while long-term debt stood at $195.0 million (debt-to-capitalization ratio of 4.4%).
Zacks Rank & Stock Picks
Helmerich & Payne currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can look at Atwood Oceanics Inc. (ATW) and Parker Drilling Co. (PKD) as good buying opportunities. These drilling service providers – sporting a Zacks Rank #2 (Buy) – have solid secular growth stories with potential to rise from current levels.
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