A month has gone by since the last earnings report for Helmerich & Payne (HP). Shares have lost about 20.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Helmerich & Payne due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Helmerich & Payne's Fiscal Q3 Results Improve Y/Y
Helmerich & Payne posted adjusted quarterly earnings of 40 cents a share, surpassing the Zacks Consensus Estimate of 35 cents and turning around from the year-ago adjusted loss of a penny.
Moreover, operating revenues of $688 million outpaced the Zacks Consensus Estimate of $683 million and increased 6% from the year-ago level.
U.S. Land: During the quarter, operating revenues totaled $591.5 million, up 10.2% year over year, as average rig revenue per day rose 10.3% to $26,155. The Zacks Consensus Estimate for fiscal third-quarter 2019 operating revenues for the company’s dominant unit was $577 million.
The average rig margin per day increased 25% from the prior-year quarter to $10,953. However, revenue days and utilization levels dropped in the quarter under review. Moreover, massive impairment charges of $216,908 related to drilling equipment amid downsizing of the Flex4 rig fleet resulted in an operating loss of of $138.2 million at the segment, comparing much unfavorably with the year-ago income of $34.3 million
Offshore: Helmerich & Payne’s Offshore revenues came in at around $37.7 million, almost unchanged with the year-ago quarter. While rig utilization declined y/y, higher average rig revenue per day and improved margins shored up the segment’s operating profits.
Daily average rig revenues increased 12.3% from the year-ago figure, while rig expense per day scaled down 11%. Consequently, the average rig margin per day jumped a whopping 165% year over year to $12,421, surpassing the Zacks Consensus Estimate of $10,000. In addition, segmental profits increased to $5.1 million from $3.8 million in the prior-year quarter.
International Land: Helmerich & Payne’s International Land operations generated revenues of $46.3 million, down from $63.3 million in the prior-year quarter on lower average rig revenue per day.
While rig utilization remained unchanged at 51%, average rig revenue and rig margin per day decreased 12.6% and 19.7% from the year-ago quarter to $26,669 and $8,019, respectively. Asset impairment charges of $7,419 million weighed on the segment’s bottom line, resulting in an operating loss of around $5 million against earnings of $4.3 million in the year-ago period.
H&P Technologies: In late November 2018, Helmerich & Payne had announced the creation of its new segment ‘H&P Technologies’ to reflect the recently acquired rig technology companies — MagVar and Motive Drilling — along with Angus Jamieson Consulting, which is an industry leader in wellbore positioning.
Courtesy of strong demand during the quarter, the segment generated revenues of $9.3 million, up 22% from the year-ago figure. Higher revenues were partly offset by increasing operating expenses and depreciation. Overall, segmental loss of $8.8 million was narrower than the year-ago loss of $9.1 million.
Capital Expenditure & Balance Sheet
During the quarter, Helmerich & Payne spent $73.6 million on capital programs. As of Jun 30, 2019, the company had $334.8 million in cash and cash equivalents, while long-term debt was $491.6 million (debt-to-capitalization ratio of 10.7%).
The Tulsa, OK-based company expects activity in the U.S. land segment to decrease 5-6% sequentially during fourth-quarter fiscal 2019. While average rig revenue per day is likely to be in the band of $25,250-$25,750, daily average rig cost is expected within $14,350-$14,850 during the said quarter.
Coming to the offshore segment, Helmerich & Payne expects average rig margin per day within $12,000-$13,000 in fourth-quarter fiscal 2019 and revenue days to edge up 1% sequentially.
However, international land segment revenue days will likely witness a slight increase sequentially. Average rig margin per day is expected within $7,500-$8,500.
Revenues from HP Technologies are expected in the band of $17-$19 million.
For fiscal 2019, Helmerich & Payne still expects capital outlay in the band of $500-$530 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -30.98% due to these changes.
At this time, Helmerich & Payne has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Helmerich & Payne has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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