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Ensco (ESV) Beats Q2 Earnings Estimates, Revenues Miss

Zacks Equity Research

Oil and natural gas driller, Ensco plc (ESV) reported diluted second-quarter 2014 earnings of $1.58 a share (excluding onetime items), which surpassed the Zacks Consensus Estimate of $1.32. The figure also increased 7% from $1.48 earned in the year-earlier quarter. Significant improvement in average dayrates aided the results.

Total revenue grew 6% to $1,203.0 million from $1,130.3 million in the year-ago quarter but missed the Zacks Consensus Estimate of $1,219.0 million.    

Segment Performance

Floaters: Revenues rose 1% to $720.6 million in the reported quarter from $716.9 million in the year-ago period. The improvement was mainly backed by the commencement of initial contract for ENSCO DS-7.

Rig utilization in this segment fell to 77% from 87% in the year-earlier quarter. However, dayrate increased to $479,176 from $430,281 a year ago.

Jackups: Revenues at the Jackup fleet jumped to $465.9 million from $393.1 million in the prior-year quarter. The average dayrate improved 11% to $134,456 from $121,631. Overall jackup utilization rose to 89% from 87% in the year-earlier quarter.

Other: Revenues came in at $16.5 million, down 19% from $20.3 million in the second quarter of 2013.

Costs and Expenses

Depreciation expenses rose 6%, contract drilling expenses increased 9%, while general and administrative expenses dropped 1% on a year-over-year basis.

Balance Sheet and Capex

At the end of second-quarter 2014, Ensco had $145 million in cash. Long-term debt was $4,679.1 million, with a debt-to-capitalization ratio of 29% (compared with 26.9% in the preceding quarter).

With the completion of the construction phase of six additional rigs − scheduled to be delivered by the end of 2014 − Ensco is expected to achieve significant growth. During 2013, the company received the delivery of three ultra-deepwater drillships and the ultra-premium jackup ENSCO 120. Ensco has a $10 billion contract revenue backlog, excluding bonus opportunities. The company’s solid backlog position provides it with excellent cash flow visibility. Additionally, an impressive balance sheet and sufficient liquidity will help it to address operational and corporate needs.  

Zacks Rank

Ensco currently carries 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 energy sector like Natural Gas Services Group, Inc. (NGS), Cameron International Corporation (CAM) and CNOOC Ltd (CEO). All these stocks sport a Zacks Rank #1 (Strong Buy).

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