Weatherford International Beats Q2 Earnings, Misses Revenues

Leading oilfield services company, Weatherford International Ltd.’s (WFT) second-quarter 2014 adjusted earnings of 24 cents per share came ahead of the Zacks Consensus Estimate of 21 cents. The results also increased from the year-earlier adjusted earnings of 15 cents on improvement across all areas barring Latin America.

Total revenue in the second quarter decreased 4.1% year over year to $3,711.0 million from $3,868 million in prior-year quarter and missed the Zacks Consensus Estimate of $3,779 million.

Operational Performance

North American revenues increased 8.5% year over year to $1,659.0 million. The growth was led by the U.S. land market where all product and service lines improved and more than offset the impact of the seasonal spring break-up in Canada. The operating income came in at $252.0 million compared with $167.0 million in the year-ago quarter.

Middle East/North Africa/Asia revenues fell almost 18.0% year over year to $754 million. The decline in revenue was primarily due to activity reductions on legacy contracts in Iraq, continued growth in the Gulf countries as well as seasonal recovery in China. The segment’s operating income grew 10.6% year over year to $73.0 million. The improvement came from strong contribution from Well Construction and Stimulation.

Europe/Sub-Sahara Africa/Russia posted revenues of $750.0 million, up 10.1% year over year. The segment’s operating income rose by 51.8% year over year to $126.0 million. The increase in revenues and operating income was led by the seasonal recovery in Russia, improved activity in the North Sea along with Continental Europe and continued growth in Sub-Sahara Africa.

Latin American revenues plunged 25.8% year over year to $548.0 million. Operating income from this segment decreased to $68.0 million from the year-ago level of $90.0 million. Operating income was lower due to start-up costs for new Well Construction contracts in Brazil, lower levels of activity in Mexico and labor disruptions in Argentina.

Liquidity

As of Jun 30, 2014, Weatherford had $571.0 million in cash and cash equivalents and long-term debt was $7,021.0 million. Weatherford spent $344 million in capital expenditures during the quarter.

Guidance

With respect to the second half of 2014, the company expects growth in its North American, Latin American, North Sea, Sub-Sahara Africa and the Middle Eastern areas. Weatherford expects growth in margins with lower costs and growth in its more profitable core businesses. The effective tax rate in the second half of the 2014 is expected between 25% and 30%. Capital expenditure for the year is projected at $1.35 billion.

Our Recommendation

We remain optimistic on Weatherford’s operational and financial leverage to international growth in 2014. 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, there are better-ranked stocks in the oil and gas sector – Swift Energy Co. (SFY) and Vermilion Energy Inc. (VET) with a Zacks Rank #1 (Strong Buy) – that are expected to outperform the market.