Nabors (NBR) Q2 Earnings Lag Estimates, Sales Beat
Nabors Industries NBR reported second-quarter 2023 adjusted loss of $2.26 per share, which missed the Zacks Consensus Estimate of a profit of $1.50 per share. This underperformance was primarily due to higher year-over-year direct costs, general and administrative expenses, research and engineering and interest expenses.
However, the loss was significantly narrower than the year-ago quarter’s reported loss of $6.99 per share. This improvement was due to better operating income from NBR’s International Drilling and Drilling Solutions segments.
Revenues of $778.8 million marginally beat the Zacks Consensus Estimate of $778 million, owing to better performance in some of NBR’s segments. The top line also improved from the year-ago quarter’s level of $632 million.
Adjusted EBITDA increased from $158 million to $235 million year over year. The amount is less than our model estimation of $247.8 million.
Nabors Industries Ltd. Price, Consensus and EPS Surprise
Nabors Industries Ltd. price-consensus-eps-surprise-chart | Nabors Industries Ltd. Quote
Segmental Performances
U.S. Drilling generated operating revenues of $314.8 million, up 24.4% from the year-ago quarter’s level of $253 million. The figure missed our estimate of $354.5 million due to a decrease in the rig count. Operating profit totaled $75.4 million compared with the prior-year quarter’s profit of $8.3 million. The figure is lower than our projection of $78.4 million.
International Drilling’s operational revenues of $337.7 million increased from the year-ago quarter’s level of $296.3 million. This was due to strong performance in the Middle East. The unit’s top line also beat our estimate of $308.8 million. Operating profit totaled $10.4 million compared with the prior-year quarter’s profit of $4.6 million. The figure is higher than our projection of $1.9 million.
Revenues from the Drilling Solutions segment totaled $76.9 million, up 37.6% from $55.9 million recorded in the prior-year quarter. The top line also beat our estimate of $71 million, driven by the efficient performance of drilling software & digitalization product lines. Additionally, the unit’s operating income of $28.4 million beat the year-ago figure of $18.3 million. The figure is also higher than our projection of $27.3 million.
Revenues from Rig Technologies increased about 41% to $63.6 million from the prior-year quarter’s level of $45.1 million. The metric beat our projection of $58.3 million, driven by international sales of capital equipment and spare parts and energy transition. The segment’s operating profit totaled $5.1 million compared with the prior-year quarter’s profit of $2.1 million. The figure is lower than our estimation of $5.6 million.
Financial Position
Nabors’ total costs and expenses increased to $736.1 million from $692.3 million in the year-ago quarter, reflecting higher direct costs, general and administrative expenses, research and engineering and interest expenses. Additionally, the amount is higher than our prediction of $731.9 million.
As of Jun 30, 2023, NBR had $429.1 million in cash and short-term investments. As of the same date, long-term debt was about $2.5 billion, with a total debt-to-total capital of 80.9%.
Nabors generated an adjusted free cash flow of $26.8 million in the reported quarter.
Guidance
Nabors’ third-quarter 2023 average rig count is expected to be in the range of 74-76. The daily margin is predicted around $16,000 in the U.S. Drilling segment. Alaska and the Gulf of Mexico's adjusted EBITDA are anticipated to decline about $7 million in the third quarter of 2023, primarily as a result of the work necessary for recertification on the M400 offshore rig.
The International Drilling segment’s third-quarter 2023 daily drilling margin is anticipated in the band of $16,000-$16,200, with the Rig count up by one to two rigs.
Nabors expects a third-quarter 2023 EBITDA of 3% for Drilling Solutions over the second-quarter level. Finally, adjusted EBITDA for the Rig technologies segment is estimated at $3 million over the second-quarter level.
Nabors projects $125 million in capital spending for the third quarter, with about $48 million going toward new construction in Saudi Arabia.
The company expects adjusted free cash flow of approximately $80 million for the third quarter. For full-year 2023, free cash flow is estimated between $300 million and $350 million.
Zacks Rank and Key Picks
Currently, NBR carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the energy sector are Evolution Petroleum EPM, sporting a Zacks Rank #1 (Strong Buy), and Murphy USA MUSA and NGL Energy Partners NGL, both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evolution Petroleum is worth approximately $273.80 million. EPM currently pays a dividend of 48 cents per share, or 5.38% on an annual basis.
The company currently has a forward P/E ratio of 7.62. In comparison, its industry has an average forward P/E of 11.90, which means EPM is trading at a discount to the group.
Murphy USA is valued at around $6.93 billion. In the past year, its shares have risen 17.5%.
MUSA currently pays a dividend of $1.52 per share, or 0.48% on an annual basis. Its payout ratio currently sits at 6% of earnings.
NGL Energy Partners is valued at around $497.37 million. In the past year, its units have risen 167.4%.
The partnership currently has a forward P/E ratio of 4.33. In comparison, its industry has an average forward P/E of 15.80, which means NGL is trading at a discount to the group.
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