Leading oilfield services company, Weatherford International Ltd. (WFT) is set to report second-quarter 2014 results on Jul 23. Let’s see how things are shaping up prior to the announcement.
In the last quarter, the company’s earnings of 13 cents per share beat the Zacks Consensus Estimate of 11 cents. The results, however, dropped from the year-earlier adjusted earnings of 15 cents. The earnings declined mainly due to weakness in North American and Latin American earnings.
Factors Influencing this Past Quarter
Weatherford is expected to benefit from an improving market scenario in the quarter to be reported. The company’s focus on core businesses, improving cost structure and divestment of non-core assets alongside reduction of debt will also reap benefits for the second 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 to have been substantially completed in the second 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 quarter, 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 are 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 are causes for concern. The company’s debt-to-capitalization ratio is 46.0%, significantly higher than its peer group average 28.9%.
Overall activities of Weatherford during the second quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained flat at 21 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 21 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.
Other 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.
Swift Energy Co. (SFY), Earnings ESP of +150.00% and a Zacks Rank #1.
Clayton Williams Energy, Inc. (CWEI), Earnings ESP of +4.97% and a Zacks Rank #1.
Vermilion Energy Inc. (VET), Earnings ESP of +7.22% and a Zacks Rank #1.
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