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Oil Stocks Q2 Earnings Roster for Jul 29: RIG, NOV & MDR

Zacks Equity Research

The second-quarter earnings season seems to have gotten off to an optimistic start for the oil and gas stocks. A few S&P energy companies, which have released quarterly numbers so far, put up a decent performance.  With a host of corporate entities lined up for earnings announcement by the end of this week, let’s take a look at the oil and gas pricing scenario during the June quarter, which is likely to affect the energy stocks’ fortunes.

Picture Thus Far

So far, six S&P oil and gas stocks have come up with their quarterly figures including Schlumberger SLB, Halliburton HAL, Helmerich & Payne HP, TechnipFMC FTI, Kinder Morgan and Cabot Oil and Gas.

While oilfield service behemoth Schlumberger reported second-quarter 2019 earnings of 35 cents per share, in line with the Zacks Consensus Estimate, smaller rival Halliburton posted higher-than-expected second-quarter profit on robust international activities. While the North America business environment remains challenging, both companies expect further uptick in the international drilling activity.

While Kinder Morgan’s earnings missed estimates for the second quarter, Helmerich, TechnipFMC and Cabot surpassed on both bottom and top-line projections for the period.

Q2 Oil and Gas Prices & Expectations

The second-quarter pricing scenario of West Texas Intermediate (WTI) crude was weaker than the year-ago period amid rising fuel inventories and a slowdown of global economy. Intensifying trade tensions between Washington and Beijing also dented oil demand. Natural gas prices were softer compared with the June quarter of 2018. It seems that the tariff war between the two big economies hurt clean energy demand as well.

The drop in oil and natural gas prices is expected to dampen the energy stocks’ earnings. The latest Earnings Trends shows that the energy sector’s second-quarter 2019 earnings  and revenues are expected to decline 17.6% and 2.6% respectively, from the year-ago period.

Key Releases on Jul 29

Given the bleak year-over-year backdrop, let’s take a glance at how the three energy companies are placed ahead of their second-quarter results this July end.

Transocean Ltd RIG:  This Texas-based offshore drilling giant is slated to release quarterly financial report after the closing bell. 

Our quantitative model clearly indicates that a company needs the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

In the last reported quarter, Transocean witnessed a negative earnings surprise of 3.45% amid lower-than-anticipated revenues from Harsh Environment floaters along with increasing costs. Regarding its surprise history, the company’s earnings missed estimates in two of the trailing four quarters, the average positive surprise being 49.51%.

Transocean Ltd. Price and EPS Surprise

Transocean Ltd. Price and EPS Surprise

Transocean Ltd. price-eps-surprise | Transocean Ltd. Quote

Transocean is unlikely to deliver a positive surprise in second-quarter 2019 as it has the unfavorable combination of an Earnings ESP of -26.10% and a Zacks Rank #4 (Sell).

The Zacks Consensus Estimate for second-quarter loss is pegged at 34 cents on revenues of $774 million. Both bottom- and top-line expectations compare unfavorably with the year-ago figures of a loss of 4 cents a share and $790 million, respectively. 

Transocean sees revenue efficiency at 95% in the second quarter of 2019, lower than 97.4% in the year-ago quarter. Further, the contract backlog currently stands at $11.4 million, down from $11.7 billion in the year-earlier period.  We also remain concerned about the reduced dayrates and higher expenses, which may hamper the company’s results in the upcoming release.Over the last few quarters, the company is bogged down by operational inefficiencies, which are compressing its margins and the trend is likely to persist this earnings season as well. Moreover, rig reactivation, scrapping and impairment charges are likely to weigh down the company's margins in the to-be-reported quarter.

National Oilwell Varco, Inc. NOV: Headquartered at Texas, this equipment provider is set to release its results after the market closes.

In the last reported quarter, the company suffered weaker-than-expected results due to decelerated seasonal demand in the international markets and pricing pressure in North America. On the surprise front, National Oilwell’s earnings managed to beat estimates in just one of the preceding four quarters, the average negative surprise being 46.18%.

National Oilwell Varco, Inc. Price and EPS Surprise

National Oilwell Varco, Inc. Price and EPS Surprise

National Oilwell Varco, Inc. price-eps-surprise | National Oilwell Varco, Inc. Quote

Our proven model predicts that the company is unlikely to beat estimates this time as well as it has a Zacks Rank #3 and an Earnings ESP of -25.71%. The current Zacks Consensus Estimate for the quarter to be reported is a loss of 7 cents on revenues of $2.08 billion. Notably, the bottom- and top-line projections compare unfavorably with the year-ago EPS of 6 cents and   revenues of $2.1 billion.

Things don’t appear quite bright for the firm this reporting cycle, thanks to fewer deliveries of drill pipes and other equipment along with slowdown of activities in both offshore and North American markets amid tightness in the upstream companies' investment budget. Consequently, the firm’s adjusted EBITDA from all its three segments is anticipated to decline on a year-over-year basis in second-quarter 2019.  While sluggish year-over-year segmental performance is likely to erode earnings, gradual acceleration in orders for new capital equipment bodes well for the firm. 

(Read More: What's in Store for National Oilwell's Q2 Earnings?)

McDermott International, Inc. MDR: Texas-domiciled equipment provider is scheduled to come up with results after the closing bell.

In the last reported quarter, the firm posted weaker-than-anticipated results amid high costs. Quarterly expenses in the first quarter surged more than four-fold year over year to $2.2 billion. McDermott also displays a dismal earnings surprise track, lagging estimates in three of the previous four quarters, the average miss being 213.40%.

McDermott International, Inc. Price and EPS Surprise

McDermott International, Inc. Price and EPS Surprise

McDermott International, Inc. price-eps-surprise | McDermott International, Inc. Quote

However, this time around, things are looking upbeat for McDermott considering our quantitative model as the firm carries a Zacks Rank of 3 and an Earnings ESP of +50.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The current Zacks Consensus Estimate for second-quarter earnings is pegged at 8 cents on revenues of $2.27 billion. However, the bottom line compares unfavorably with the year-ago EPS of 29 cents. Revenue estimates for the quarter to be reported is projected higher than the year-ago figure of $1.7 billion.

McDermott's merger with Chicago Bridge & Iron augurs well as it adds onshore services to the offshore focused portfolio of the company, increasing the scale and boosting its backlog in turn. Notably, the backlog at the end of the second quarter is estimated at $17.1 billion, higher than $10.2 billion and $15.4 billion recorded in the year-earlier period and the prior reported quarter, respectively.Higher utilization levels, merger cost synergies and the implementation of recent bookings are likely to drive the company’s second-quarter 2019 earnings. Nonetheless, cost overruns associated with the key energy projects like Cameron LNG along with a bearish cash flow outlook for 2019 might ail the upcoming quarterly performance.

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TechnipFMC plc (FTI) : Free Stock Analysis Report
McDermott International, Inc. (MDR) : Free Stock Analysis Report
National Oilwell Varco, Inc. (NOV) : Free Stock Analysis Report
Halliburton Company (HAL) : Free Stock Analysis Report
Schlumberger Limited (SLB) : Free Stock Analysis Report
Helmerich & Payne, Inc. (HP) : Free Stock Analysis Report
Transocean Ltd. (RIG) : Free Stock Analysis Report
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