Helmerich & Payne (HP) Q4 Earnings Miss, Revenues Beat - Analyst Blog

Contract drilling services provider Helmerich & Payne Inc. (HP) reported weaker-than-expected earnings for the fourth fiscal quarter of 2014 (three months ended Sep 30, 2014), pulled down by international business. Earnings per share from continuing operations (excluding special items) came in at $1.59, below the Zacks Consensus Estimate of $1.68.
 

Helmerich & Payne's earnings miss is in contrast to peers such as Patterson-UTI Energy Inc. (PTEN), Nabors Industries Ltd. (NBR) and Transocean Ltd. (RIG) that came out with in-line or better numbers.

However, the bottom line was up from the year-ago adjusted profit of $1.46 amid solid drilling activity.

Revenues of $985 million – a record for the company – were up 13.9% from the fourth fiscal quarter 2013 and also came above the Zacks Consensus Estimate of $977 million.

Segment Performance

U.S. Land Operations: During the quarter, operating revenues totaled $824.2 million (84% of total revenue), up 16.4% year over year. Average rig revenue per operating day was $28,164, 3.1% below the year-ago period, while average rig margin per day decreased 2.8% to $14,994. However, utilization levels rose to 87% (from 82% in the fourth fiscal quarter of 2013), pushing up the segment operating income by 9.7% from the year-earlier quarter to $258.6 million.

Offshore Operations: Helmerich & Payne's offshore revenues were up 16.9% year over year to $63.9 million. Daily average rig revenue increased 2.4% to $61,845, while average rig margin per day jumped 24.5% to $22,385. This helped the segment operating income improve by 45.7% from the previous year period to $15 million. Meanwhile, rig utilization remained same as the year-ago level of 89%.

International Land Operations: Helmerich & Payne's international land operations recorded revenues of $93.4 million, down from $98.5 million in the previous-year quarter. Average daily rig revenue was $37,392, essentially flat from the corresponding period last year, while rig margin per day was $8,769, lower than the $10,634 a year ago.

As a result, segment profitability took a downward trajectory, coming down to $5.9 million, from $13.9 million in the fourth quarter of fiscal 2013. Moreover, activity levels plunged to 69% from 87% a year ago.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $330.9 million on capital programs. As of Sep 30, 2014, the company had approximately $360.9 million in cash, while long-term debt stood at $40 million (debt-to-capitalization ratio of below 1%).

Guidance

The company hopes activity in the U.S. land segment to rise by 1-2% sequentially during the first fiscal quarter of 2015 but the average rig revenue per day is likely to remain flat. Daily average rig cost is expected to go up a little to roughly $13,250 during next quarter.

As for the offshore segment, Helmerich & Payne sees the average rig margin per day to be around $20,000 during the first quarter of fiscal 2015 and revenue days to improve by 10% sequentially.

Lastly, the international land segment will likely experience flat revenue days and average rig margin per day in the next quarter.

Helmerich & Payne's fiscal 2015 capital expenditure is targeted to be in the $1.4-$1.7 billion.

Zacks Rank

Helmerich & Payne 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.

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