It has been about a month since the last earnings report for Nabors Industries (NBR). Shares have lost about 36.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Nabors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Nabors’ Q1 Loss Narrows Y/Y, Sales Up
Nabors Industries reported first-quarter 2019 adjusted loss from continuing operations of 36 cents per share, wider than the Zacks Consensus Estimate of 25 cents, primarily due to weak performance of the international drilling segment. However, the loss was narrower than the year-ago adjusted loss of 46 cents per share, mainly on the back of stronger y/y contribution from its U.S. Drilling and Drilling Solutions segment.
Quarterly revenues of $809.3 million beat the Zacks Consensus Estimate of $774 million. Moreover, the top line was higher than the year-ago level of $734.6 million, attributable to robust y/y performance of the U.S. Drilling segment. Notably, during the quarter, the company operated an average of 120.9 rigs in the United States compared with 111.8 in the year-ago period.
Nabors’ U.S. Drilling segment generated quarterly operating revenues of $320.2 million, up 33% from the year-ago level of $241 million. The segment recorded an operating income of $24 million, reflecting a significant turnaround from $19.7 million loss a year ago. This was mainly driven by an improvement in drilling performance in the Lower 48 and Alaska. Pricing and margin improvements buoyed the results. The average rig count in the Lower 48 increased to 115 in the quarter under review. Moreover, the company expects the count to reach 120 by the end of this year.
Canadian Drilling segment revenues came in at $25.3 million in the quarter under review, down from the year-ago figure of $31.8 million amid weak market environment and lower y/y rig count. Nonetheless, the segment’s operating loss narrowed to $59,000 from $592,000 in the corresponding quarter of 2018.
International Drilling segment’s operations attributed to revenues of $337.3 million, which decreased from the year-ago quarter’s $368.8 million. The segment incurred an operating loss of $5.6 million in the quarter under review vis-a-vis income of $24.5 million in the prior-year period. Operational challenges in Latin America and Middle East impacted the bottom line. Reduced day rates, and idled rigs in Argentina and Venezuela dented the results. Notably, rig count in the segment declined to 89.7 from 94.6 in first-quarter 2018.
Revenues from the Drilling Solutions segment increased to $65.4 million in first-quarter 2019 from $62.6 million recorded in the year-ago period. The unit’s operating income of $8.7 million in the year-ago period improved to $12.8 million in the quarter under review. This can be attributed to integration benefits from the recently acquired PetroMar business and higher y/y activities across most of its segments’ product lines.
Revenues from the Rig Technologies segment increased to $71.7 million from the prior-year level of $64.6 million. The segment’s loss narrowed to $5.1 million from the prior-year loss of $13 million. The segment’s results were positively impacted by improved contribution from the core Canrig business.
Total costs and expenses increased to $882.9 million from $854.7 million in the year-ago quarter, primarily on the back of increased direct costs. The company’s capital expenditure was $146 million in the quarter under review.
As of Mar 31, the company had $469.7 million in cash and short-term investments, and $3,677.6 million in long-term debt, with a debt-to-capitalization ratio of approximately 58.1%.
Guidance & Outlook
In the U.S. drilling segment, rig count in the Lower 48 region is expected to increase by three-four rigs in second-quarter 2019. The region is expected to benefit from improving dayrates and margins. Rig count in Alaska is expected to decline in the quarter amid seasonality factors.
The company expects rig count in the international segment to remain flat and uncertain market conditions in Venezuela to prevail. However, improved operational performance and cost control in Latin America are likely to improve the segment’s results in second-quarter 2019. Nabors expects EBITDA from the International unit to exceed $90 million in second-quarter 2019 compared with $85.8 million in the first quarter.
The Canadian segment is likely to bear the brunt of market weakness and tough operating environment in the second quarter as well
EBITDA from the Drilling Solutions segment is expected to improve sequentially in the second quarter. The segment is anticipated to keep up the momentum, with an annual run rate of $125 million in fourth-quarter 2019.
While EBITDA from the Rig Technologies unit is likely to record a modest improvement sequentially, the segment will see an uptick in revenues from rig automation projects in robotics operation in the latter half of the year.
Second-quarter capital spending is expected to reduce to $100 million, with full-year capex projected at around $400 million. Interest and dividend payouts are expected to decline by about $100 million in the second quarter. The company remains focused to reduce debt by $200-$250 million within the end of the year and by $600-$700 million through 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 8.61% due to these changes.
At this time, Nabors has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Nabors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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