Leading oilfield services’ company, Weatherford International Ltd.’s (WFT) first quarter 2011 adjusted earnings of 10 cents per share missed the Zacks Consensus Estimate of 19 cents. The earnings miss was largely due to lower-than-expected operating income across all reporting segments of the company, excluding North America.
However, quarterly results grew substantially from the year-earlier profit of 3 cents, mainly driven by strong North American activity and solid performance in Canada.
Total revenue expanded more than 22% year over year to $2,856.2 million, surpassing the Zacks Consensus Estimate of $2,849 million.
Operational Performance
North American revenues climbed 53% year over year to $1,360.5 million. Sequentially, revenue was up 8%. The improvement was attributable to robust activity in Canada, partially offset by severe weather conditions that disrupted operations in the U.S. The segment posted an operating income of $283.7 million compared with $108.4 million in the year-ago period.
Middle East/North Africa/Asia revenues upped 2.4% year over year but declined 16% sequentially to $575.5 million. The sequential drop was mainly due to political turbulence in the Middle East as well as in North Africa. Additionally, challenging weather conditions in Australia was also responsible for the decline.
The segment’s operating income plummeted nearly 86% year over year and 35% sequentially to $10.8 million.
Europe/West Africa/FSU posted revenues of $510.4 million, up more than 12% year over year but declined 3% sequentially. The segment’s operating income dropped 19% year over year and 42% on a sequential basis to $37.5 million. The winter effect in the North Sea, Russia and Caspian was the dampener.
Latin American revenues dropped 4% year over year and 8% sequentially to $409.8 million, pulled down by Mexico and Venezuela.
Operating income from this segment was $21.1 million, down 19% from the year-ago quarter and 60% from the previous quarter.
Liquidity
Weatherford had $249.3 million in cash and cash equivalents at the end of the quarter. As of March 31, 2011, the company’s long-term debt was $6,526.5 million, representing a debt-to-capitalization ratio of 40.2% (versus 40.5% recorded in the preceding quarter). Weatherford spent approximately $355.7 million in capital expenditures during the quarter.
Guidance
Weatherford guided second quarter 2011 earnings in the range of 15 cents to 17 cents a share. Furthermore, the company foresees a gradual improvement in North America margins throughout 2011 that excludes seasonal headwinds in Canada in the second quarter.
Weatherford also expects volumes and pricing to rise in the international markets, which in turn will add to its margins for 2011, which the company expects to be considerably better than the 11% margin level in 2010.
Our Recommendation
Although we remain optimistic on Weatherford’s operational and financial leverage to international growth in 2011, the ongoing political and weather turmoil and related impacts on the company’s results raise apprehensions.
Moreover, Weatherford’s debt-heavy balance sheet, its weak capability to generate free cash flow as well as competition from its peer company, Baker Hughes Incorporated (BHI) are also causes of concern.
Consequently, our long-term Neutral recommendation remains unchanged at this stage.
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