Nabors Q1 Earnings in Line, Down Y/Y - Analyst Blog

Land drilling contractor Nabors Industries Ltd. NBR reported first-quarter 2014 earnings from continuing operations of 16 cents per share, in-line with the Zacks Consensus Estimate. Impressive international operations along with improved production services aided the result.  

However, the bottom line decreased a significant 48.4% from the first-quarter 2013 level of 31 cents per share (from continuing operations), owing to a severe winter that hampered the company's Completion Services business. Increase in direct operating costs also led to the year-over-year decline.

Total revenue of $1,588.2 million beat the Zacks Consensus Estimate of $1,577.0 million. Improved sales from the Drilling and Rig Services segment, and the Production unit favored the result.

On the flip side, the top line was down 1.8% from $1,617.8 million in the year-ago period, owing to lower sales at Completion Services.

Segment Analysis

Nabors reports its operations in 2 major segments: Drilling and Rig Services – comprising U.S., Canada, International and Rig Services; and Completion and Production Services – including Production Services and Completion Services.

Drilling and Rig Services:

During the quarter, Drilling and Rig Service revenues were up 6.9% year over year to $1,140.9 million, while the segment's operating income improved approximately 18.8% to $155.5 million. Total rig years rose to 380.2 from 352.3 in the first quarter of 2013.

Nabors' U.S. operations recorded quarterly revenues of $510.5 million, up 5.3% from the year-ago level. However, operating income decreased 6.6% year over year to $72.5 million.

The Canadian market registered a year-over-year decline of 12.0%, recording revenues of $111.6 million. The operating profit was reported at $26.2 million, reflecting a 14.3% fall from the year-ago quarter.

Nabors' international operations saw substantial progress in revenue generation (up 16.7% year over year) and operating income moved up a whopping 124.1% from first-quarter 2013. Increased rig activities supported the upside.

Revenues at the Rig Services segment were up 7.1% to $143.7 million from the prior-year quarter. The unit reported operating profit of $8.7 million, up from $1.3 million in the year-earlier quarter.

Completion and Production Services:

Completion Services posted revenues of $227.9 million, down 13.1% from the year-ago quarter. The operating loss for the segment came in at $33.6 million against a profit of $17.8 million in first-quarter 2013. Unfavorable weather conditions affected the results.

Revenues and operating income at the Production Services segment increased 9.5% and 17.6% year over year, respectively.

Direct Cost

The direct expenses related to operation came at $1,061.7 million, increased 6.7% from the year-ago quarter's figure.

Balance Sheet

As of Mar 31, 2014, Nabors had $424.8 million in cash and short-term investments and $3,812.5 million in long-term debt, with a debt-to-capitalization ratio of approximately 39.0%.

Zacks Rating

Nabors Industries currently has 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.

Meanwhile, one can look at better-ranked players in the oil and gas drilling sector like Helmerich & Payne Inc. HP, Pioneer Energy Services Corp. PES and Seadrill Partners LLC SDLP. Helmerich & Payne and Pioneer Energy Services sport a Zacks Rank #1 (Strong Buy), while Seadrill Partners holds a Zacks Rank #2 (Buy).