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RPC (RES) Stock Down on Q1 Earnings Miss and Dividend Cut

Zacks Equity Research

RPC, Inc. RES reported first-quarter 2019 breakeven earnings per share, lagging the Zacks Consensus Estimate of 3 cents. The bottom line also declined from the year-ago level of 24 cents.

Total revenues of $334.7 million missed the Zacks Consensus Estimate of $345 million. Moreover, the top line declined from the year-ago figure of $436.3 million.

The weak fourth-quarter results were primarily attributable to lower activity levels and pricing, especially in the company’s biggest service line, the pressure pumping service business.

It slashed quarterly cash dividend to 5 cents per share from 10 cents due to the current uncertainty in the oilfield market. The dividend is payable on Jun 10 to its shareholders of record as of May 10. The company is planning to use this dividend cut as an opportunity to strengthen the capital structure and keep its balance sheet healthy. However, investors are not at all happy with the news, more so in view of the weak first-quarter results. As a result, the stock declined 17.8% yesterday.

RPC, Inc. Price, Consensus and EPS Surprise

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

Segmental Performance

Operating loss from the Technical Services segment came in at $4.5 million, down from the year-ago profit level of $65 million. The decline was mainly caused by lower activity levels in many of the larger service lines and lower pricing in the pressure pumping service line.

Contrarily, operating profit from the Support Services segment came in at $3.1 million against the year-ago loss of $0.9 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 $295.6 million in first-quarter 2018 to $252.4 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 supported the cost of revenues.

Selling, general and administrative costs rose to $45.4 million in the reported quarter from $43.8 million in the year-ago period.

Share Repurchase

The company bought back around 55,942 outstanding shares in the first quarter. Currently, it has around 212.5 million shares outstanding.

Financials

RPC’s total capital expenditure in the first quarter of 2019 amounted to $62.3 million.

As of Mar 31, the company had cash and cash equivalents of $113 million and no long-term debt.

Market Performance

RPC revealed that the average domestic rig count in the reported quarter increased 8% year over year to 1,043. The company stated that oil price in the quarter averaged $54.58 per barrel, reflecting a 13.3% year-over-year decrease. Also, average price of natural gas was recorded at $2.92 per thousand cubic feet, 7.6% lower than the year-ago level.

Outlook

The company expects the pressure pumping market to continue being oversupplied, primarily due to increasing efficiency achieved by completion services providers. However, improving oil prices and upcoming Permian Basin bottleneck reliever projects can act as positive catalysts and improve market demand in the near term.

Zacks Rank and Stocks to Consider

Currently, RPC has a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

Fort Lauderdale, FL-based Seacor Holdings Inc. CKH is an oil and gas equipment and services provider. Its bottom line in 2019 is anticipated to improve 2% from the prior-year quarter. The company has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Archrock, Inc. AROC is a midstream energy infrastructure company. Its bottom line in first-quarter 2019 is expected to improve 39.6% from the year-ago period. The company has a Zacks Rank #2 (Buy).

Los Angeles, CA-based ProPetro Holding Corp. PUMP is an oilfield services provider. Its bottom line in 2019 is expected to rise 21% year over year. The company has a Zacks Rank #2.

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