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Cost Reduction to Aid Helmerich & Payne's (HP) Q3 Earnings

Zacks Equity Research
·5 min read

Helmerich & Payne, Inc. HP is set to release fiscal third-quarter 2020 results after the closing bell on Tuesday, Jul 28. The current Zacks Consensus Estimate for the to-be-reported quarter is a loss of 67 cents per share on revenues of $303.6 million.

Let’s delve into the factors that might have influenced the oil and gas contract driller’s performance in the June quarter. But it’s worth taking a look at Helmerich & Payne’s previous quarter performance first.

Highlights of Fiscal Q2 Earnings & Surprise History

In the last reported quarter, the Tulsa, OK-based drilling rig provider missed the consensus mark on weakness in the U.S. Land segment. Helmerich & Payne reported adjusted loss per share of a cent that compared with the Zacks Consensus Estimate of earnings of 7 cents per share. However, the company’s quarterly revenues of $633.6 million topped the Zacks Consensus Estimate of $593 million owing to strong contributions from International Land and H&P Technologies segments.

As far as earnings surprises are concerned, Helmerich & Payne, which has cut its fiscal 2020 capital program and dividend to survive the crude mayhem, is on a sound footing, having gone past the Zacks Consensus Estimate in three of the last four reports, with the average surprise being 12.1%. This is depicted in the graph below:

Helmerich Payne, Inc. Price and EPS Surprise

Helmerich  Payne, Inc. Price and EPS Surprise
Helmerich Payne, Inc. Price and EPS Surprise

Helmerich Payne, Inc. price-eps-surprise | Helmerich Payne, Inc. Quote

Trend in Estimate Revision

The Zacks Consensus Estimate for fiscal third-quarter 2020 earnings per share remained same over the last seven days. However, the estimated figure indicates an 267.5% drop from the year-ago reported earnings. The Zacks Consensus Estimate for revenues also suggests a 55.9% decrease from the prior-year reported figure of $688 million.

Factors to Consider This Quarter

The slump in oil prices has pushed drilling activity lower by introducing tremendous uncertainty around the exploration and production (E&P) spending outlook. As supplier of technology, solution and parts to the E&P sector, Helmerich & Payne is not immune to this bearish market condition.

However, the company has managed to shield itself to some extent through robust pricing in the super-spec market space. As a reflection of this, Helmerich & Payne’s average rig revenue per day in the U.S. Land segment - representing nearly 90% of its total fleet and more than 80% of sales - rose 3.1% year over year to $26,256 in the fiscal second quarter. While daily revenue is unlikely to have increased in the to-be-reported quarter, it is expected to have held up well, at $22,000. This should improve chances of an outperformance in the fiscal third quarter.   

Moreover, the company has also done a fairly admirable job at reducing costs. Helmerich & Payne’s cash outflows as capital expenditure continue to fall as the firm reigns in its spending levels. The company boasts substantially lower drilling expenses for its technologically advanced rig fleet, while realizing sizeable savings from cutting the dividend. All this is expected to have pushed Helmerich & Payne’s fiscal third-quarter earnings and cash flows higher.

Why a Likely Positive Surprise?

Our proven model predicts an earnings beat for Helmerich & Payne this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Helmerich & Payne has an Earnings ESP of +2.03% and a Zacks Rank #3.

Other Stocks to Consider

Helmerich & Payne is not the only energy company looking up this earnings cycle. Here are some other firms from the space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this season:

Crescent Point Energy Corp. CPG has an Earnings ESP of +12.50% and a Zacks Rank #2. The company is scheduled to release earnings on Jul 30.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Magellan Midstream Partners, L.P. MMP has an Earnings ESP of +2.89% and is Zacks #3 Ranked. The company is scheduled to release earnings on Jul 30.

Enbridge Inc. ENB has an Earnings ESP of +0.98% and is Zacks #3 Ranked. The company is scheduled to release earnings on Jul 29.

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