Leading oilfield services company Weatherford International Ltd.’s (WFT) third-quarter 2013 adjusted earnings of 23 cents per share beat the Zacks Consensus Estimate of 21 cents. The results also increased from the year-earlier adjusted earnings of 9 cents.
Total revenue in the third quarter was flattish year over year at $3,820.0 million but missed the Zacks Consensus Estimate of $4,098 million.
Operational Performance
North American revenues for the quarter were $1,597 million, up 4% sequentially and down 7% from the same quarter in the prior year. The quarter’s operating income was up 29% sequentially at $215 million, and down $82 million, or 28% year over year. The sequential increase was largely attributable to the seasonal recovery from the spring break-up in Canada, as well as higher profitability generated by strong execution.
Middle East/North Africa/Asia revenues of $819 million were up $119 million, or 17% from the third quarter of 2012, and down $100 million, or 11% sequentially. The current quarter’s operating income of $69 million increased 92% or $33 million from the same quarter in the prior year, and 5% sequentially. Middle East and North Africa profitability improved sequentially and was partially offset by lower sequential performance in the Asia Pacific region. Iraq margins, excluding legacy contracts, also improved sequentially and year over year.
Europe/Sub-Sahara Africa/Russia posted revenues of $691 million, up 10% year over year and 1% sequentially. The current quarter’s operating income of $103 million increased 17% from the same quarter in the prior year and $20 million or 24% sequentially. The year-over-year operating income growth resulted from higher margins in the region driven by Europe and Sub-Saharan Africa. Sequentially, operating income increased primarily driven by higher seasonal profitability in Russia.
Latin American revenues of $713 million were down $26 million, or 4% sequentially and $55 million, or 7% from the third quarter of 2012. The year-over-year decline in revenues was largely related to lower activity in Mexico. The current quarter’s operating income of $115 million was up $18 million, or 19% year over year, and $25 million, or 28% sequentially, primarily driven by increased profitability in Argentina.
Liquidity
As of Sep 30, 2013, Weatherford had $316 million in cash and cash equivalents and long-term debt was $7,065 million. Weatherford spent $365 million in capital expenditures during the quarter.
Guidance
With respect to the fourth quarter of 2013, the company expects higher revenues and operating income from its North American business as a result of a lower operating cost structure in the region. This would result from a lower operating cost structure in the U.S. and higher activity levels in Canada. However, the company expects the Latin America region to report flat numbers.
The company also expects improvements in the Eastern Hemisphere in 2013, with upside in Europe, Caspian and Russia, as well as stronger activity levels in the Middle East, North Africa and Asia-Pacific.
The annual effective tax rate in 2013 is expected in the range of 22% to 24%. Further cost reductions and improvements in capital efficiency lead to a positive outlook on the company.
Our Recommendation
We remain optimistic on Weatherford’s operational and financial leverage to international growth in 2013. However, Weatherford’s debt-heavy balance sheet, weak free cash flow and competition from larger peers such as Schlumberger Limited (SLB) are causes of concern.
Weatherford holds a Zacks Rank #3 (Hold). However, other stocks in the oil and gas sector, such as Ocean Rig UDW Inc. (ORIG) and TransAtlantic Petroleum Ltd. (TAT), holding a Zacks Rank #1 (Strong Buy), are expected to perform better.
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