Leading oilfield services company, Weatherford International Ltd.’s (WFT) third-quarter 2014 adjusted earnings of 32 cents per share missed the Zacks Consensus Estimate of 33 cents. The results however increased from the year-earlier adjusted earnings of 23 cents.
Total revenue in the third quarter increased 1.5% year over year to $3,877.0 million from $3,820 million in prior-year quarter. However, the top line missed the Zacks Consensus Estimate of $3,984 million.
Operational Performance
North American revenues increased 14% year over year to $1,814.0 million. This growth was led by Canada, across all product lines. The operating income came in at $292.0 million compared with $215.0 million in the year-ago quarter.
Middle East/North Africa/Asia revenues fell almost 1% year over year to $808 million. The decline in revenue was primarily due to geopolitical disruptions in Northern Iraq and North Africa, principally Libya. The segment’s operating income grew 10.1% year over year to $76.0 million.
Europe/Sub-Sahara Africa/Russia posted revenues of $644.0 million, down 6.8% year over year. The segment’s operating income rose by 35.9% year over year to $140.0 million. The fall in revenues was due to divested businesses. The improvement in operating income was led by growth from Well Construction and geographically from its core business operations in Russia.
Latin American revenues plunged 14% year over year to $611.0 million. Operating income from this segment decreased to $90.0 million from the year-ago level of $115.0 million.
Liquidity
As of Sep 30, 2014, Weatherford had $582.0 million in cash and cash equivalents and long-term debt was $7,004.0 million. Capital expenditures during the quarter totaled $349 million.
Guidance
With respect to the fourth quarter 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 is expected at around 25%. The company expects to reduce net debt to $7.0–$7.5 billion by the year end.
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 such as EQT Midstream Partners LP (EQM) and Boardwalk Pipeline Partners LP (BWP). Both sport a Zacks Rank #1 (Strong Buy) and are expected to outperform the market.
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