Land drilling contractor Nabors Industries Ltd. (NBR) reported better-than-expected third-quarter 2013 earnings. Impressive performances from international operations aided the result.
Adjusted earnings from continuing operations (excluding asset impairments and debt redemption charges) came in at 20 cents per share, surpassing the Zacks Consensus Estimate of 19 cents.
However, the figure decreased significantly by 52.4% from the third-quarter 2012 level of 42 cents per share (excluding special items), due to substantially lower activities in Canada along with reduced seasonal output from Alaska and Gulf of Mexico.
Revenues of $1,549.4 million were down by 5.4% as compared to $1,637.6 million in the year-ago period. The top line also failed to meet the Zacks Consensus Estimate of $1,588.0 million. Reduced sales from the Drilling and Rig Services segment, and the Completion and Production unit hurt the results.
Segment Analysis
Nabors reports its operations in 2 major segments: Drilling and Rig Services – comprising U.S., Canada, International and Rig Services; and Completion and Production Services – including Production Services and Completion Services.
Drilling and Rig Services:
During the quarter, Drilling and Rig Service revenues were down 4.5% year over year to $1,088.1 million, while the segment’s operating income decreased approximately 10.8% to $161.6 million. Total rig years fell to 349.7 from 364.4 in the third quarter of 2012.
Nabors’ U.S. operations recorded quarterly revenues of $491.9 million, down 11.5% from the year-ago level. Additionally, operating income decreased 19.5% year over year to $92.7 million due to weak seasonal output from Gulf of Mexico and Alaska.
The Canadian market registered a year-over-year decline of 21.0%, recording revenues of $81.4 million. The operating profit was reported at $12.2 million, representing a fall of 43.5% from the year-ago quarter.
Nabors’ international operations saw a substantial progress in revenue generation (up 16.5% year over year) and operating income moved up by a whopping 79.1% from third-quarter 2012. Increase in rig activity aided the segment’s results.
The revenues of the Rig Services segment were down 13.5% to $131.2 million from the prior-year quarter. The unit reported operating profit of $2.4 million in this quarter as compared to a profit of $14.0 million in the year-ago period.
Completion and Production Services:
Completion Services posted revenues and operating income of $266.5 million (down 30.1%) and $13.0 million (down 72.4%), respectively. Losses in the stimulation works in Canada and in coiled tubing activities in the U.S. affected the operating result.
Revenues and operating income of the Production Services segment decreased 3.2% and 23.9% year over year, respectively.
Balance Sheet
As of Sep 30, 2013, Nabors had $491.9 million in cash and short-term investments and $4,036.0 million in long-term debt, with a debt-to-capitalization ratio of approximately 41.0%.
Zacks Rating
The company currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.
Not all stocks are performing as poorly as Nabors. One can look at better performing energy stocks like Stone Energy Corp. (SGY), Vermilion Energy Inc. (VET) and Baytex Energy Corp. (BTE) that offer value. All the stocks sport a Zacks Rank #1 (Strong Buy).
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