Diamond Offshore Drilling Inc. (DO) reported first quarter 2011 earnings of $1.80 per share, handily beating the Zacks Consensus Estimate of $1.44.
However, earnings fell below the year-ago profit of $2.09, weighed down by high operating expenses and a lower dayrate.
Total revenue in the quarter fell nearly 6.2% to $806.4 million from the year-earlier level, but breezed past the Zacks Consensus Estimate of $798 million.
Dividend Story
Diamond Offshore declared a 75 cents per share special dividend in the quarter, which remained unchanged from the prior quarter. The company will also pay its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized).
Operational Performance
Revenue for the Contract Drilling segment fell 6.6% year over year to $788.9 million, hurt by poor performances of high specification floaters, intermediate semis and jackups.
The high specification floaters accounted for nearly 46% of the total quarterly contract drilling revenue, while intermediate semi-submersibles and jackups contributed 48% and 6%, respectively.
High specification floaters recorded an average dayrate of $339,000 during the quarter, down from $400,000 in the year-earlier quarter. Intermediate semi-submersible rigs realized an average dayrate of $273,000, versus $276,000 in the year-ago quarter. Jackup rigs’ dayrates averaged $82,000, down from $100,000 in the first quarter of 2010.
High specification rig utilization was 81% during the quarter, up from 79% in the year-ago quarter. Intermediate category rig utilization was 80% compared with 78% in the comparable quarter last year, while jackup rig utilization decreased to 47% from 63% in the year-earlier quarter.
Financials
As of March 31, 2011, Diamond Offshore had approximately $493.2 million in cash and cash equivalents, while long-term debt stood at $1,495.7 million. The debt-to-capitalization ratio at the end of the quarter was about 27.2%.
Outlook
Houston, Texas-based Diamond Offshore is a major contract driller, providing comprehensive offshore drilling services to the global energy industry. The company’s fleet comprises 32 semisubmersibles, 13 jackups and 3 dynamically positioned drillships, of which two are under construction with an expected delivery date in 2013.
We believe that Diamond Offshore exhibits long-term earnings growth visibility based on its strong leverage to the offshore deepwater drilling market. Additionally, the company’s significant free cash flow generation potential and healthy balance sheet enhances the possibility of further share buybacks and/or special dividends, going forward.
The company’s peers Nabors Industries Ltd. (NBR) and Transocean Ltd. (RIG) are expected to report their earnings results over the next two weeks.
We maintain our long-term Neutral recommendation for Diamond Offshore shares, given the volatile oil and gas prices scenario, geopolitical risks with international operations and the uneven mid-water markets with the expectation of a gradual decline in Midwater rates. Diamond Offshore currently holds a Zacks #3 Rank (short-term ‘Hold’ rating).
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
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