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Transocean (RIG) Q2 Loss Wider Than Expected, Sales Lag

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Transocean Ltd. RIG posted second-quarter 2019 adjusted loss of 34 cents a share, a penny wider than the Zacks Consensus Estimate. Lower-than-anticipated revenues from Harsh Environment floaters and increase in costs primarily led to the underperformance. Precisely, revenues from harsh environment floaters came in at $251 million, lagging the consensus estimate of $296 million. The bottom line also compared unfavorably with the year-ago period’s loss of 4 cents.

The offshore drilling powerhouse generated total revenues of $758 million, missing the Zacks Consensus Estimate of $774 million. The top line also declined from the prior-year figure of $790 million.

Transocean Ltd. Price, Consensus and EPS Surprise

 

Transocean Ltd. Price, Consensus and EPS Surprise
Transocean Ltd. Price, Consensus and EPS Surprise

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

Segmental Revenue Break Up

Transocean’s High-Specification floaters contributed about 97.2% to total contract drilling revenues, while Deepwater and Midwater floaters accounted for the remainder. In the quarter under review, revenues from Ultra-Deepwater and Harsh Environment floaters totaled $486 million and $251 million, respectively.

Revenue efficiency was 98%, in line with the first quarter. The figure reflected an increase from the year-ago level of 97%.

Dayrates and Utilization

On an encouraging note, average dayrate in the quarter under review rose to $314,900 from the year-ago level of $308,300, owing to an uptick in activity in the Asia Pacific, Brazil and GoM. The company witnessed y/y higher average revenue per day from harsh environment and midwater floaters. Overall fleet utilization was 56% during the quarter, down from the utilization rate of 57% in the year-ago period.

Backlog

Transocean’s backlog, which was recorded at $11.4 billion as of Jul 25, reflects a decline of $300 million from the year-ago period. During the second quarter, the company added approximately $158 million to its backlog.

Costs, Capex & Balance Sheet

Transocean’s operating and maintenance expenses rose 11.5% year over year to $774 million. Operating and maintenance costs also increased to $510 million from $431 million in the year-ago quarter. Transocean spent $86 million on capital expenditure in the second quarter of 2019. Cash provided by operating activities totaled $153 million, resulting in a positive free cash flow of $67 million. It had cash and cash equivalents of $2.2 billion on Jun 30, 2019. Long-term debt was $9.4 billion, with a debt-to-capitalization ratio of 42.3% as of the same date.

Guidance

For the third quarter, the company expects operating and maintenance expenses of $575 million. Full-year operating and maintenance costs are expected to be around $2.1 billion.  Capital spending is likely to be around $215 million (including $120 million to be spent on under-construction newbuilds) in the third quarter.

Zacks Rank & Key Picks

Currently, Transocean has a Zacks Rank #3 (Hold). Some better-ranked players from the same industry are TC PipeLines, LP TCP, MPLX LP MPLX and Oasis Midstream Partners LP OMP, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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