Diamond Offshore Drilling Inc. (DO) reported significantly weaker-than-expected fourth quarter 2009 results due to a severe contraction in utilization rate for jackups and high specification floaters. This was further aggravated by an increased income tax expense.
Quarterly earnings were of $1.98 per share, well below the Zacks Consensus Estimate of $2.32 and the year-earlier earnings of $2.28.
Diamond’s quarterly earnings missed the Zacks Consensus Estimate by 14.7%. The company’s experience of an earnings surprise for the preceding four quarters varies between negative 3.4% and positive 14.9%, with the average being positive 7.6%.
There was no change in estimates over the last 7 days. However, over the last 30 days, 6 of the 25 analysts covering the stock have raised their estimates for 2010 while an equal number of analysts moved in the opposite direction. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $9.70 per share, which is lower than the full fiscal 2009 earnings of $9.89 per share.
Total revenue of $890.8 million for the quarter decreased more than 1% year over year, mainly due to poor contribution from jackups. However, Diamond maintained its special cash dividend of $1.875 per share in this quarter. This is in addition to its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized).
Revenue by Segment
Despite slightly higher dayrates for high specification floaters, contract drilling revenue decreased 2% year over year to $872.1 million. The high specification floaters accounted for nearly 44% of the total quarterly contract drilling revenue, while intermediate semi-submersibles and jackups accounted for 45% and 11% of the total, respectively.
Diamond’s Gulf of Mexico (GoM) high specification floaters recorded an average dayrate of $388,000 during the quarter, up marginally year over year. Intermediate semi-submersible rigs realized an average dayrate of $280,000, down 1.4% year over year, while jackup rigs’ dayrates averaged $112,000, down more than 7% year over year.
High specification rig utilization was 81% during the quarter, down from 89% in the year-ago quarter. Intermediate category rig utilization was 78%, flat year over year. Meanwhile, jackup rig utilization was 63%, down significantly from 92% in the prior-year quarter.
At the end of the quarter, Diamond had approximately $376.4 million in cash on hand and $1.5 billion in long-term debt. Debt-to-capitalization ratio at the end of the quarter stood at about 29.2%.
Diamond has been maintaining its track record of returning excess cash to shareholders through special dividends. Though this is supported by the company’s sound contract backlog position, we are concerned about Diamond’s increasing leverage trend and drastic erosion in dayrate and utilization for jackups. We are currently Neutral on Diamond shares.
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