Nabors (NBR) Q2 Earnings Lag Estimates, Sales Surge Y/Y

Nabors Industries Ltd. NBR reported second-quarter 2018 adjusted loss from continuing operations of 39 cents per share, wider than the Zacks Consensus Estimate of 21 cents due to increased expenses. However, the reported loss was narrower than the year-ago adjusted loss of 46 cents per share due to strong performance from the U.S. Drilling segment.

Quarterly revenues of $758.8 million marginally missed the Zacks Consensus Estimate of $760 million due to lower sales from the International Drilling segment. However, the top line was 20.5% higher than the year-ago level of $630 million, which can be attributed to higher rig activities in most of the segments.

Notably, during the second quarter, the company received awards for 13 incremental rigs, all over the world, amid rising demand for high-specification rigs.

Segments

Nabors’ U.S. Drilling segment generated quarterly operating revenues of $264.4 million, up 41.1% from the year-ago level. This was mainly driven by an increase in dayrates and margins in Lower 48. Though U.S. operations incurred an operating loss of $13.1 million, it improved from a loss of $56.1 million in the prior-year period. The startup of the MODS^TM 400 deepwater platform rig in the Gulf of Mexico at the beginning of the quarter positively impacted the segment’s results.

Canadian Drilling segment witnessed a marginal upside (1.9% year-over-year) in revenues to stand at $17.4 million in the quarter under review. Moreover, the segment’s quarterly loss of $4.6 million was narrower than the operating loss of $5 million in the year-ago quarter on the back of the company’s shift toward higher-spec rigs, partially offset by lower rig count.

International Drilling segment’s operations attributed to revenues of $378 million, which decreased from the year-ago quarter’s $380.3 million. Further, operating income fell to $24.5 million in the quarter under review from the year-ago quarter’s figure of $36.2 million due to lower rig counts, partially triggered by the sale of jack-ups. The company expects the segment’s third-quarter results to be affected by the Saudi jackup sale.

Revenues at the Drilling Solutions segment increased to $59.9 million in second-quarter 2018 compared with $31.8 million recorded in the year-ago quarter. As such, the unit recorded an improvement from the operating income of $3.8 million in the year-ago quarter to $7.5 million in the quarter under review. This can be attributed to higher activities across most of the segments’ product lines and greater contribution from certain services of Tesco.

Revenues at the Rig Technologies segment increased to $81.3 million compared with the prior-year quarter’s level of $61.2 million, primarily due to increased aftermarket sales. Moreover, the segment’s loss narrowed to $3.4 million from the prior-year quarter’s $5 million. The segment’s results were impacted by delayed completion and shipping of capital equipment, which took place in the second quarter.

Expenses

Total costs and expenses increased from $765.4 million in the year-ago quarter to $930.7 million, on the back of increased direct costs in the reported quarter.

Balance Sheet

As of Jun 30, 2018, the company had $636.5 million in cash and short-term investments, and $3,818.6 million in long-term debt, with a debt-to-capitalization ratio of approximately 55.3%. The company reduced its debt burden through the quarter, with equity issuance and divestment of three Saudi Arabia jackups.

Zacks Rank & Key Picks

Currently, Hamilton, Bermuda-based drilling contractor Naborshas a Zacks Rank #3 (Hold). Investors interested in the Energy sector can opt for some better-ranked stocks like Canadian Natural Resources Limited CNQ, ConocoPhillips COP and Cheniere Energy, Inc. LNG. While Canadian Natural Resources sports a Zacks Rank #1 (Strong Buy), ConocoPhillips and Cheniere Energy both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Calgary, Canada-based Canadian Natural Resources is an upstream energy company. The company’s top line for 2018 is anticipated to improve 35.3% year over year, while its bottom line is expected to increase more than 170%.

Houston, TX-based ConocoPhillips is an integrated energy company. The company’s top line for 2018 is likely to improve 18.4% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 27.6%.

Houston, TX-based Cheniere Energy mainly focuses on liquefied natural gas-related businesses. The company’s top line for 2018 is anticipated to improve 25.9% year over year, while its bottom line is expected to increase more than 225%.

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