Nabors Reports a Mixed Bag - Analyst Blog

Land drilling contractor Nabors Industries Ltd. (NBR) reported mixed fourth-quarter 2012 results, as strong operational execution was offset by weak market conditions and lower pressure pumping activity.  

Earnings per share from continuous operations (excluding special items) came in at 30 cents, just ahead of the Zacks Consensus Estimate of 29 cents. However, comparing year over year, the results declined 42.3% from 52 cents (adjusted) earned in the fourth quarter of 2011.

 

Revenues of $1,627.1 million were below the fourth-quarter 2011 sales of $1,739.9 million, due to the decline in activities in most of the business units. The results were also below the Zacks Consensus Estimate of $1,660.0 million.

 

Segment: Analysis

 

Nabors reports its operations into 2 major segments: Drilling and Rig Services – comprising U.S. Lower 48 Land Drilling, U.S. Offshore, Alaska, Canada, and International; and Completion and Production Services – including  U.S. Production Services and Completion Services.

 

During the quarter, Drilling and Rig Service revenues were down 7.2% year over year at $1,152.5 million, while the segment’s operating income decreased approximately 34.5% to $138.9 million. The company’s rig years fell to 345.9 from 390.1 in fourth quarter 2011.

 

The company’s U.S. Lower 48 Land Drilling division registered year-over-year downsides in its sales (down 15.6%) and profits (down 27.2%).

 

Nabors’ U.S. Offshore operations recorded quarterly revenues of $61.2 million, up 13.5% from the year-ago level. However, the segment experienced a loss of $14.3 million, as against a profit of $3.4 million in the fourth quarter of 2011 due to lower margins on a platform construction project and reversal of earlier accrued profits. 

 

The revenues of the Alaska operations were down 12.7% at $25.5 million from the prior-year quarter and operating income decreased 58.9% year over year.

 

The Canadian market registered a year-over-year decline of 9.8% in revenues of $152.1 million and 23.2% in operating profit of $28.1 million.

 

The company’s international operations saw a substantial improvement in revenue generation (up 10.0% year over year) but operating income moved down 0.3% from fourth-quarter 2011. Payments received due to early termination of contracts aided the segment’s revenue.

 

Revenues of the U.S. Production Services segment improved 7.3% year over year, while operating income decreased 16.0% from the prior-year quarter. The results were down due to lower average truck hours partially offset by improved average rig rates.

 

Completion Services posted revenue and operating income of $295.8 million (down 20.0%) and $30.3 million (down 60.4%), respectively.

 

Balance Sheet

 

As of Dec 31, 2012, the company had $778.2 million in cash and short-term investments and $4,379.7 million in long-term debt (inclusive of current portion), with a debt-to-capitalization ratio of approximately 42.4%.

 

Zacks Rating

 

The company currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

 

Nabors Industries is the leading North American land drilling contractor, having a large, high-quality fleet of drilling and workover rigs. Over the years, the company has grown through cash flow reinvestments and acquisitions. In the process, Nabors has not only increased its rig fleet, but also extended its geographic reach and diversified its operating assets beyond land rigs.

 

However, an imbalance in the demand-supply of rigs in the U.S. land drilling market presents considerable risk for the company. Moreover, the challenging near-to-intermediate term outlook for Nabors’ international business will likely hamper its profitability in the coming months.

 

Meanwhile, some other companies in the energy sector are expected to perform well in the coming 1 to 3 months. These include ARC Resources Ltd. (AETUF) with Zacks Rank #1 (Strong Buy) as well as McDermott International (MDR) and Technip Ads (TKPPY) with Zacks Rank #2 (Buy).

ARC RESOURCES (AETUF): Get Free Report

MCDERMOTT INTL (MDR): Free Stock Analysis Report

NABORS IND (NBR): Free Stock Analysis Report

TECHNIP NEW (TKPPY): Get Free Report

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