Land-drilling contractor Nabors Industries Ltd. (NBR) reported lower-than-expected second-quarter 2013 earnings due to the seasonal depression in the operation of Alaska and Canada.
Earnings per share from continuous operations came in at 8 cents, which failed to beat the Zacks Consensus Estimate of 9 cents. Nabors’ per share profit also fell below than the second-quarter 2012 level of 38 cents (excluding special items).
Revenues of $1,507.8 million were below second-quarter 2012 sales of $1,608.2 million. The top line also failed to meet the Zacks Consensus Estimate of $1,513.0 million.
Nabors reports its operations in 2 major segments: Drilling and Rig Services – comprising U.S., Canada, International and Rig Services; and Completion and Production Services – including Production Services and Completion Services.
Drilling and Rig Services:
During the quarter, Drilling and Rig Service revenues were down 13.5% year over year to $1,035.8 million, while the segment’s operating income decreased approximately 46.1% to $102.2 million. Total rig years fell to 338.4 from 377.5 in the second quarter of 2012.
Nabors’ U.S. operations recorded quarterly revenues of $467.1 million, down 22.0% from the year-ago level. Additionally, operating income decreased 52.0% year over year to $69.8 million due to the fall in Alaska’s peak winter activity.
The Canadian market registered a year-over-year decline of 1.9%, recording revenues of $64.8 million. The segment, however, reported operating profit of $3.9 million in comparison with loss of $0.5 million in the year-ago period.
Nabors’ international operations saw a significant improvement in revenue generation (up 15.4% year over year) and operating income moved up by a whopping 98.0% from second-quarter 2012. Increase in rig activity aided the segment’s revenues.
The revenues of the Rig Services segment were down 33.3% to $152.5 million from the prior-year quarter. The unit reported operating loss of $4.0 million in this quarter as compared to a profit of $28.2 million in the year-ago period.
Completion and Production Services:
Completion Services posted revenues and operating income of $254.0 million (down 34.5%) and $6.9 million (down 85.1%), respectively.
Revenues of the Production Services segment increased 1.8% year over year, however, operating income decreased 7.6% from the prior-year quarter owing to adverse weather conditions.
As of Jun 30, 2013, Nabors had $608.0 million in cash and short-term investments and $4,071.2 million in long-term debt, with a debt-to-capitalization ratio of approximately 41.0%.
The company 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.
Nabors Industries is the leading North American land drilling contractor, with a large, high-quality fleet of drilling and workover rigs. The company has developed through cash flow reinvestments and acquisitions. In the process, Nabors has not only increased its rig fleet but has also extended its geographic reach and diversified its operating assets beyond land rigs.
However, an imbalance in the demand-supply of rigs in the U.S. land drilling market presents considerable risk for the company. Moreover, the challenging near-to-intermediate term outlook for Nabors’ international business will likely hamper its profitability in the coming months.
Meanwhile, there are other drilling contractors in the energy sector that are expected to perform well in the next 1 to 3 months. These include Atwood Oceanics Inc. (ATW), Ocean Rig UDW Inc. (ORIG) and Parker Drilling Co. (PKD). All the firms sport a Zacks Rank #2 (Buy).
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