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RPC (RES) Q4 Earnings & Sales Lag Estimates, Costs Decline

Zacks Equity Research

RPC, Inc. RES reported fourth-quarter 2018 earnings of 6 cents per share, which lagged the Zacks Consensus Estimate of 10 cents. The bottom line also declined from the year-ago level of 18 cents.

Total revenues of $376.8 million missed the Zacks Consensus Estimate of $387 million. Moreover, the top line declined from the year-ago figure of $427.3 million.

The weak fourth-quarter results stemmed from lower activity levels and pricing, especially in the company’s pressure pumping service business.

RPC, Inc. Price, Consensus and EPS Surprise

RPC, Inc. Price, Consensus and EPS Surprise | RPC, Inc. Quote

Segmental Performance

Operating profit from the Technical Services segment came in at $19.9 million, lower than the year-ago level of $67 million. The decline was mainly caused by lower activity levels in several of the larger service lines along with lower pricing in the pressure pumping service line.

Contrarily, operating profit from the Support Services segment came in at $2.5 million against the year-ago loss of $1.6 million. The improvement was backed by enhanced activity levels and pricing in the rental tool service line. Rental tool service line, being the largest service line in the segment, has considerable weightage.

Cost and Expenses

Cost of revenues plunged from $285.7 million in the fourth quarter of 2017 to $274.4 million due to fall in the expenses of materials and supplies in the company’s pressure pumping service business. Declining maintenance and repair costs due to overall lower activity levels also supported the cost of revenues.

Selling, general and administrative costs fell to $40 million in the reported quarter from $42 million in the year-ago period, primarily due to decreased financial performance, which in turn resulted in lower incentive compensation expenses.

Share Repurchase

The company bought back around 229,000 outstanding shares in the fourth quarter, which took the total annual tally to 2.1 million shares.

Financials

RPC’s total capital expenditure in 2018 amounted to $242.6 million, of which $43 million was allotted in the fourth quarter.

As of Dec 31, 2018, the company had cash and cash equivalents of $116.3 million and no long-term debt.

Market Performance

RPC revealed that the average domestic rig count in the reported quarter increased 16.5% year over year to 1,073. The company stated that oil price in the quarter averaged $59.36 per barrel, reflecting a 7.2% year-over-year increase. Also, average price of natural gas was recorded at $3.78 per thousand cubic feet, 30.3% higher than the year-ago level.

Outlook

Through fourth-quarter 2018, the average monthly West Texas Intermediate (WTI) crude prices declined from $70.75 per barrel in October to $49.52 in December, per the U.S Energy Information Administration.This unexpected fall in crude prices in the October to December quarter has impacted RPC’s clients, which affected their drilling and completion plans. It upset RPC’s results in turn. In the first quarter of 2019 as well, the clients of RPC have decided to re-evaluate their budget, which brought uncertainty in the company’s business. Thus, RPC forecasts a cautious stance for 2019. It expects total capital expenditure for the year within $240-$250 million. 

Zacks Rank and Stocks to Consider

Currently, the company has a Zacks Rank #4 (Sell). Investors interested in the energy sector can opt for some better-ranked stocks as given below.

Houston, TX-based Shell Midstream Partners, L.P. SHLX is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 60 days, is expected to grow 27.7% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Luxembourg-based Subsea 7 S.A. SUBCY is an offshore oilfield service provider. The company delivered average positive earnings surprise of more than 329% in the trailing four quarters, missing estimates just once. The stock currently has a Zacks Rank #2.

YPF Sociedad Anonima YPF is a Buenos Aires, Argentina-based integrated energy company. Its bottom line for 2018 is expected to increase more than 27% year over year. The company currently has a Zacks Rank #2.

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