A month has gone by since the last earnings report for Helmerich & Payne (HP). Shares have lost about 16.6% 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 the most recent earnings report in order to get a better handle on the important drivers.
Helmerich & Payne's Fiscal Q2 Results Improve Y/Y
Helmerich & Payne posted adjusted quarterly earnings of 66 cents a share, comfortably surpassing the Zacks Consensus Estimate of 38 cents and turning around from the year-ago adjusted loss of 5 cents.
Operating revenues of $720.9 million outpaced the Zacks Consensus Estimate of $714 million and surged around 25% from the year-ago level.
U.S. Land: During the quarter, operating revenues totaled $622.2 million, up 28.9% year over year as revenue days increased 13.9% and average rig revenue per day rose 12%. The Zacks Consensus Estimate for operating revenues at the company’s dominant unit in fiscal second quarter of 2019 was $606 million.
The average rig margin per day also increased 29.9% to $11,486. Moreover, utilization levels of 67% in the quarter under review (versus 59% in second-quarter fiscal 2018) resulted in an operating income of $106.1 million at the segment, reflecting a massive jump from the year-ago profit of $27.1 million and ahead of the Zacks Consensus Estimate of $89 million.
Offshore: Helmerich & Payne’s Offshore revenues came in at around $34.6 million compared with $33 million in the prior-year quarter primarily due to increase in the number of revenue days.
Notably, rig utilization was 75%, up from the year-ago level of 63%. However, daily average rig revenues came in lower than the year-ago figure, while rig expense per day rose 7.7%. Consequently, the average rig margin per day moved down 43% year over year and segmental profits decreased to $4.5 million from $5.4 million in the prior-year quarter.
International Land: Helmerich & Payne’s International Land operations generated revenues of $50.8 million, down slightly from $52.5 million in the prior-year quarter on lower average rig revenue per day.
Meanwhile, rig utilization rose to 54% from 45% a year ago. Average rig expense per day reduced 20.6% from the year-ago quarter. Further, rig margin per day was $11,861, higher than the year-ago figure of $8,533 and daily rig expenses fell more than 20%. As a result, the segment’s operating earnings totaled $8 million, turning around from the year-ago quarter’s loss of $695,000.
H&P Technologies: In late November 2018, Helmerich & Payne 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.
The segment witnessed strong demand during the quarter, leading to revenues of $10.1 million, up 61% from the year-ago figure. Higher revenues were partly offset by increasing operating expenses and depreciation. Overall, segmental loss of $7.9 million was slightly narrower than the year-ago loss of $8.5 million.
Capital Expenditure & Balance Sheet
During the quarter, Helmerich & Payne spent $133.9 million on capital programs. As of Mar 31, 2019, the company had $243.9 million in cash and cash equivalents, while long-term debt stood at $491.2 million (debt-to-capitalization ratio of 10.2%).
The Tulsa, OK-based company expects activity in the U.S. land segment to decrease 5-7% sequentially during the third quarter of fiscal 2019. While average rig revenues per day are likely to be in the band of $25,500-$26,000, daily average rig cost is expected within $14,250-$14,750 during the said quarter.
Coming to the offshore segment, Helmerich & Payne expects average rig margin per day within $9,500-$10,500 in third-quarter fiscal 2019 and revenue days to edge up 1% sequentially.
However, international land segment revenue days will likely decrease 1% sequentially. Average rig margin per day is expected within $9,000-$10,000.
For fiscal 2019, Helmerich & Payne still expects its 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 -14.02% due to these changes.
At this time, Helmerich & Payne has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 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. Notably, Helmerich & Payne has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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