Does Weatherford International’s Management Anticipate Recovery?
Analyzing Weatherford International's Fiscal 1Q16 Earnings
Weatherford International’s segment-wise performance
The revenue from Weatherford International’s (WFT) North America region declined the most. It fell 53% from fiscal 1Q15 to fiscal 1Q16. Weatherford International’s Middle East, North Africa, Asia-Pacific region’s revenue fall was relatively moderate at 32% during the same period. In comparison, National Oilwell Varco’s (NOV) fiscal 1Q16 revenue decreased 54.6%—compared to last year.
All of Weatherford International’s geographic segments recorded an operating income decline in fiscal 1Q16—compared to a year ago. Its North America region’s fiscal 1Q16 operating loss deteriorated to $128 million in fiscal 1Q16—compared to an operating loss of $10 million last year. Its Latin America region was more resilient. Its operating income fell 55% during the same period.
In total, Weatherford International’s operating income switched to -$447 million in fiscal 1Q16 from $50 million in operating income in fiscal 1Q15. In comparison, National Oilwell Varco’s (NOV) fiscal 1Q16 operating loss was $189 million. Its market capitalization stands at $12.6 billion—compared to Weatherford International’s $6.7 billion. Weatherford International accounts for 3.9% of the iShares US Oil Equipment & Services ETF (IEZ).
Factors that impacted its fiscal 1Q16 performance
lower US rig count resulted in declines in customer activity and spending
upstream energy companies’ spending reductions and activity declined primarily in Colombia, Mexico, Brazil, and Venezuela
project cancellations throughout the Sub-Sahara Africa region
lower seasonal product sales in completion, artificial lift, and well construction that impacted the Gulf States, China, Australia, and Indonesia
Partially mitigating the negative effects above were cost reduction measures. The measures started in North America in fiscal 1Q16.
Management’s views
Weatherford International’s management expressed optimism about the oilfield services industry’s recovery in the long run. Bernard J. Duroc-Danner, Weatherford International’s chairman and CEO, commented in the fiscal 1Q16 earnings press release that “As we look forward, we believe the long-term fundamentals of our industry remain intact. The steady increases in world energy demand coupled with the acceleration of production decline rates are forcing a balance between supply and demand. Oil prices are beginning to respond to this gradual tightening of the supply-demand balance.”
Next, we’ll discuss Weatherford International’s returns.
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