A month has gone by since the last earnings report for Transocean (RIG). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Transocean 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 catalysts.
Transocean Posts Narrower Loss, Revenue Beat in Q2
Transocean reported an adjusted net loss of 10 cents per share in the second quarter of 2022, narrower than the Zacks Consensus Estimate of a loss of 11 cents. This marginal outperformance reflects a sequential increase in revenues due to an increase in activity.
Moreover, RIG’s bottom line improved from the year-ago period’s loss of 18 cents.
The offshore drilling powerhouse’s total adjusted revenues of $722 million beat the Zacks Consensus Estimate of $687 million. Adjusted revenues rose 10% from the year-earlier figure of $656 million.
In a separate press release, Transocean stated that the ultra-deepwater drillship, Petrobras 10000, received a 5.8-year contract for work, offshore Brazil, from a national oil company. The contract will add an estimated $915 million in the backlog and is anticipated to begin in October 2023 and end in August 2029.
Segmental Revenue Breakup
Transocean’s ultra-deepwater floaters contributed to 65.2% of the total contract drilling revenues, while harsh environment floaters accounted for the remaining 34.8%. In the second quarter of 2022, revenues from the ultra-deepwater and harsh environment floaters totaled $451 million and $241 million, respectively, compared with the corresponding year-ago quarter’s reported figures of $424 million and $232 million.
Revenue efficiency was 97.8%, higher than the 94.9% reported sequentially but lower than the year-ago value of 98%.
Dayrates, Utilization & Backlog
Average dayrates in the quarter declined to $358,100 from the year-ago level of $369,400. RIG witnessed a strong year-over-year increase in average revenues per day from Harsh Environment floaters from $379,900 to $406,000 but a decrease in the same from Ultra-deepwater floaters from $363,500 in the year-ago quarter to $334,400. Overall, fleet utilization was 58.2% in the quarter, up from the prior-year period’s utilization rate of 54.9%.
Transocean’s backlog record of $6.2 billion for the quarter reflects a sequential increase from $6.1 billion in the last quarter.
Costs, Capex & Balance Sheet
Operating and maintenance costs decreased marginally to $433 million from $434 million a year ago. The company spent $115 million on capital investments in the second quarter. Cash provided by operating activities stood at $40 million. The company had cash and cash equivalents worth $729 million as of Jun 30, 2022. The long-term debt was $6.37 billion, with a debt-to-capitalization of 36.3% as of the same date.
For the third quarter of 2022, this offshore drilling contractor expects adjusted contract drilling revenues of $670 million, and third-quarter operations and maintenance expenses are projected at approximately $464 million. For full-year 2022, Transocean anticipates adjusted revenues of approximately $2.6 billion and operations and maintenance expenses of $1.7 billion. Its general and administrative expenses for the third quarter are expected at around $45 million and approximately $175 million for the full year. The net interest expense for the third quarter is forecast to be roughly $98 million and about $395 million for 2022. The liquidity forecast for RIG includes the estimated 2022 capital expenditure and capital addition of $1.2 billion and the 2023 CapEx expectation of $200 million. The 2022 CapEx includes $1.1 billion related to the company’s newbuild and $60 million for maintenance CapEx
Finally, cash taxes for the year are expected to be roughly around $34 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 -13.51% due to these changes.
At this time, Transocean has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. 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 this revision 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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