A month has gone by since the last earnings report for Transocean (RIG). Shares have added about 6.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Transocean due for a pullback? 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.
Transocean Reports Wider-Than-Expected Q4 Loss
Transocean posted adjusted loss of 34 cents a share in the fourth quarter of 2018, 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.
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.
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 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.
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.
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 -44.29% due to these changes.
Currently, Transocean has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, 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 D. 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, Transocean has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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