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Transocean (RIG) Swings to Loss in Q4, Tops Sales Estimates

After coming up with profitable results in the third quarter, Transocean Limited RIG disappointed investors by reporting a net loss in the fourth quarter of 2018. The company posted adjusted loss of 34 cents a share, wider than the Zacks Consensus Estimate and the year-ago figure, both of which stood at 24 cents. Lower-than-anticipated revenues from harsh environment floaters along with increasing costs led to the underperformance. Precisely, revenues from harsh environment floaters came in at $253 million, lagging the consensus estimate of $298 million. Weather-related downtime on a couple of its harsh environment floaters located offshore Canada led to lost revenues of $21 million. Further, operational inefficiencies and reduced y/y dayrates led to weaker results than the year-ago quarter.

Nonetheless, the offshore drilling powerhouse generated total revenues of $748 million, surpassing the Zacks Consensus Estimate of $729 million. The top line also increased from the prior-year figure of $629 million.

Transocean Ltd. Price, Consensus and EPS Surprise

 

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

Segmental Revenue Break-Up

Transocean’s High-Specification floaters contributed about 95% to total contract drilling revenues, while Deepwater floaters, Midwater floaters, High-Specification Jackups accounted for the remainder. In the quarter under review, revenues from Ultra-Deepwater and Harsh Environment floaters totaled $457 million and $253 million, respectively.

Revenue efficiency in the quarter was 96%, reflecting an increase from both the third quarter and year-ago level of 95% and 92%, respectively.

Dayrates and Utilization

On a discouraging note, dayrates in the quarter under review fell to $293,100 from the year-ago level of $296,700, owing to a decline in average daily revenues for Ultra Deepwater and Deepwater floaters.

Overall fleet utilization was 62% during the quarter, up from the utilization rate of 53% and 65% recorded in the year-ago period and last reported quarter, respectively.

Backlog

Transocean’s strong backlog, which was recorded at $12.2 billion as of Feb 11, reflects steady demand from customers. While the company won a few small contracts since the last fleet report in October 2018, the $830-million worth five-year drilling contract received from Chevron Corporation CVX served as a fundamental component to boost its backlog that came in at $11.5 billion as of Oct 22. Markedly, Transocean, sitting atop a record backlog, is the largest provider of offshore contract drilling services.

Costs

Transocean’s operating and maintenance expenses rose 28.7% year over year to $497 million. Depreciation costs also increased to $204 million from $184 million in the year-ago quarter.

Cash flow from operating activities came in at $238 million in the fourth quarter of 2018.

Capital Expenditure & Balance Sheet

Transocean spent $44 million on capital expenditure in the fourth quarter of 2018. It had cash and cash equivalents of $2,160 million as of Dec 31, 2018. Long-term debt of the company was $9,605 million, with a debt-to-capitalization ratio of 42.3% as of the same date.

Zacks Rank & Key Picks

Currently, Transocean has a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space include Repsol SA REPYY and YPF Sociedad Anonima YPF, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Repsol’s 2019 earnings are expected to increase 13.69% on a year-over-year basis.

YPF Sociedad delivered average positive earnings surprise of 210.38% in the trailing four quarters.

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