Leading oilfield services company, Weatherford International Ltd. (WFT) is set to report third-quarter 2014 results on Oct 22. Let’s see how things are shaping up prior to the announcement.
In the last quarter, the company’s earnings of 24 cents per share beat the Zacks Consensus Estimate of 21 cents. The results also improved from the year-earlier adjusted earnings of 15 cents. The earnings were boosted by improvement across all business areas barring Latin America.
Will Weatherford impress in the upcoming release after combating the challenges witnessed by it? Let’s see what factors might have influenced the earnings report this time around.
Past Quarter Flashback
Weatherford is expected to benefit from an improving market scenario in the third quarter. The company’s focus on core businesses, improving cost structure and divestment of non-core assets alongside reduction of debt will also benefit the quarter. The company targeted reduction of over 6,600 positions in its workforce, with expected annualized pre-tax cost savings of approximately $450 million. This reduction is expected mostly in the third quarter itself. Alongside divestment of non-core assets, this is expected to result in about $500 million in annualized pre-tax cost savings.
With respect to the second half of 2014, the company expects growth in its North American, Europe/Sub-Sahara Africa/Russia and Middle East/North Africa/Asia businesses, while revenues in Latin American business is expected to decline.
On the flip side, Weatherford’s debt-heavy balance sheet, its incapability to generate strong free cash flow as well as competition from larger peers is a cause of concern. The company’s debt-to-capitalization ratio is 46.1%, significantly higher than its peer group average 29.1%.
Overall activities of Weatherford during the third quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate declined to 33 cents from 35 cents per share over the last 60 days.
Earnings Whispers
Our proven model does not conclusively show that Weatherford is likely to beat earnings this quarter because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for that to happen. It is not the case here, as you will see below.
Zacks ESP: The Earnings ESP for Weatherford is 0.00% since the Most Accurate estimate stands at 33 cents, in line with the Zacks Consensus Estimate.
Zacks Rank: Weatherford carries a Zacks Rank #3 (Hold). Though the rank increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
Stocks to Consider
Here are a couple of companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter.
Enbridge Energy Management LLC (EEQ) has Earnings ESP of +25.93% and a Zacks Rank #1 (Strong Buy).
Tallgrass Energy Partners, LP (TEP) has Earnings ESP of +6.67% and a Zacks Rank #1.
Delek Logistics Partners, LP (DKL) has Earnings ESP of +5.56% and a Zacks Rank #1.
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