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Helmerich & Payne (HP) Beats Q3 Earnings and Sales Estimates

Zacks Equity Research

Helmerich & Payne Inc. HP recently released fiscal third-quarter 2019 results, wherein it delivered a comprehensive beat on the back of higher-than-expected revenues from the U.S. Land business, the company’s largest segment. Investors should note that the unit represents 90% of its total fleet and accounts for nearly 85% of the contract drilling service provider’s revenues. Better-than-expected performance from the offshore segment also led to the outperformance.

The company posted adjusted quarterly earnings of 40 cents a share, surpassing the Zacks Consensus Estimate of 35 cents and turning around from the year-ago adjusted loss of a penny.

Moreover, operating revenues of $688 million outpaced the Zacks Consensus Estimate of $683 million and increased 6% from the year-ago level.

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

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

Helmerich & Payne, Inc. price-consensus-eps-surprise-chart | Helmerich & Payne, Inc. Quote

Segmental Performance

U.S. Land: During the quarter, operating revenues totaled $591.5 million, up 10.2% year over year, as average rig revenue per day rose 10.3% to $26,155. The Zacks Consensus Estimate for fiscal third-quarter 2019 operating revenues for the company’s dominant unit was $577 million.

The average rig margin per day increased 25% from the prior-year quarter to $10,953.  However, revenue days and utilization levels dropped in the quarter under review. Moreover, massive impairment charges of $216,908 related to drilling equipment amid downsizing of the Flex4 rig fleet resulted in an operating loss of of $138.2 million at the segment, comparing much unfavorably with the year-ago income of $34.3 million

Offshore: Helmerich & Payne’s Offshore revenues came in at around $37.7 million, almost unchanged with the year-ago quarter. While rig utilization declined y/y, higher average rig revenue per day and improved margins shored up the segment’s operating profits.

Daily average rig revenues increased 12.3% from the year-ago figure, while rig expense per day scaled down 11%. Consequently, the average rig margin per day jumped a whopping 165% year over year to $12,421, surpassing the Zacks Consensus Estimate of $10,000. In addition, segmental profits increased to $5.1 million from $3.8 million in the prior-year quarter.

International Land: Helmerich & Payne’s International Land operations generated revenues of $46.3 million, down from $63.3 million in the prior-year quarter on lower average rig revenue per day.

While rig utilization remained unchanged at 51%, average rig revenue and rig margin per day decreased 12.6% and 19.7% from the year-ago quarter to $26,669 and $8,019, respectively. Asset impairment charges of $7,419 million weighed on the segment’s bottom line, resulting in an operating loss of around $5 million against earnings of $4.3 million in the year-ago period.

H&P Technologies: In late November 2018, Helmerich & Payne had announced the creation of its new segment ‘H&P Technologies’ to reflect the recently acquired rig technology companies — MagVar and Motive Drilling — along with Angus Jamieson Consulting, which is an industry leader in wellbore positioning.

Courtesy of strong demand during the quarter, the segment generated revenues of $9.3 million, up 22% from the year-ago figure. Higher revenues were partly offset by increasing operating expenses and depreciation. Overall, segmental loss of $8.8 million was narrower than the year-ago loss of $9.1 million.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent $73.6 million on capital programs. As of Jun 30, 2019, the company had $334.8 million in cash and cash equivalents, while long-term debt was $491.6 million (debt-to-capitalization ratio of 10.7%).

Guidance

The Tulsa, OK-based company expects activity in the U.S. land segment to decrease 5-6% sequentially during fourth-quarter fiscal 2019. While average rig revenue per day is likely to be in the band of $25,250-$25,750, daily average rig cost is expected within $14,350-$14,850 during the said quarter.

Coming to the offshore segment, Helmerich & Payne expects average rig margin per day within $12,000-$13,000 in fourth-quarter fiscal 2019 and revenue days to edge up 1% sequentially.

However, international land segment revenue days will likely witness a slight increase sequentially. Average rig margin per day is expected within $7,500-$8,500.

Revenues from HP Technologies are expected in the band of $17-$19 million.

For fiscal 2019, Helmerich & Payne still expects capital outlay in the band of $500-$530 million.

Zacks Rank and Key Picks

Helmerich & Payne currently carries a Zacks Rank #3 (Hold).

Meanwhile, some better-ranked players in the energy space are SEACOR Holdings, Inc. CKH, Oceaneering International OII and Subsea 7 SA SUBCY, each holding Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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