A month has gone by since the last earnings report for RPC (RES). Shares have lost about 1.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is RPC 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 drivers.
RPC’s Q4 Earnings & Sales Lag Estimates, Costs Decline
RPC, Inc. reported fourth-quarter 2018 earnings of 6 cents per share, which lagged the Zacks Consensus Estimate of 10 cents. The bottom line also declined from the year-ago level of 18 cents.
Total revenues of $376.8 million missed the Zacks Consensus Estimate of $387 million. Moreover, the top line declined from the year-ago figure of $427.3 million.
The weak fourth-quarter results stemmed from lower activity levels and pricing, especially in the company’s pressure pumping service business.
Operating profit from the Technical Services segment came in at $19.9 million, lower than the year-ago level of $67 million. The decline was mainly caused by lower activity levels in several of the larger service lines along with lower pricing in the pressure pumping service line.
Contrarily, operating profit from the Support Services segment came in at $2.5 million against the year-ago loss of $1.6 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 $285.7 million in the fourth quarter of 2017 to $274.4 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 also supported the cost of revenues.
Selling, general and administrative costs fell to $40 million in the reported quarter from $42 million in the year-ago period, primarily due to decreased financial performance, which in turn resulted in lower incentive compensation expenses.
The company bought back around 229,000 outstanding shares in the fourth quarter, which took the total annual tally to 2.1 million shares.
RPC’s total capital expenditure in 2018 amounted to $242.6 million, of which $43 million was allotted in the fourth quarter.
As of Dec 31, 2018, the company had cash and cash equivalents of $116.3 million and no long-term debt.
RPC revealed that the average domestic rig count in the reported quarter increased 16.5% year over year to 1,073. The company stated that oil price in the quarter averaged $59.36 per barrel, reflecting a 7.2% year-over-year increase. Also, average price of natural gas was recorded at $3.78 per thousand cubic feet, 30.3% higher than the year-ago level.
Through fourth-quarter 2018, the average monthly West Texas Intermediate (WTI) crude prices declined from $70.75 per barrel in October to $49.52 in December, per the U.S Energy Information Administration.This unexpected fall in crude prices in the October to December quarter has impacted RPC’s clients, which affected their drilling and completion plans. It upset RPC’s results in turn. In the first quarter of 2019 as well, the clients of RPC have decided to re-evaluate their budget, which brought uncertainty in the company’s business. Thus, RPC forecasts a cautious stance for 2019. It expects total capital expenditure for the year within $240-$250 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 -65.71% due to these changes.
Currently, RPC has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 RPC has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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