Pride International Inc. (PDE) reported depressed fourth-quarter and full-year 2010 results, hurt by higher operating expenses.

The company’s quarterly earnings, excluding one-time items, of 40 cents per share, failed to meet the Zacks Consensus Estimate of 43 cents. However, on a year-over-year comparison, results increased considerably from adjusted earnings of 19 cents per share.

Full-year 2010 earnings came in at $1.37 per share, below our projection of $1.52 and $1.92 earned last year.

The company reported total revenue of $400.8 million, up 26.6% year over year, but slightly below the Zacks Consensus Estimate of $402.0 million. For full-year 2010, revenue dropped 8.4% year over year to $1.46 billion, but was almost in line with our projection.

Segmental Performance

Deepwater: The segment revenue shot up nearly 52.2% year over year to $271.0 million. The segment’s revenue also increased almost 25% sequentially, mainly attributable to improved average daily revenue from semisubmersible rig and drillship Deep Ocean Ascension. The segment’s earnings from continuing operations jumped 126.6% from the year-ago quarter to $107.4 million.

Average dayrate for the Deepwater fleet was $339,800 in the quarter, compared with $294,800 in the prior quarter and $322,700 in the comparable quarter prior year. Of the Deepwater fleet, 96% was utilized, compared with 95% in the last quarter and 75% in the year-earlier quarter.

As of December 31, 2010, the company had 85% of rig days in 2011 under contract, while 75% were under contract in 2012, 60% in 2013 and 46% in 2014.

Midwater: The segment reported quarterly revenue of $97.8 million, up almost 30% year over year and about 13.5% sequentially attributable to the start-up of operations at the semisubmersible rig, Pride Venezuela. However, the segment registered operating earnings of $10.4 million, up from $7.9 million in fourth quarter 2009, but below $12.5 million in the prior quarter.

Average dayrate in this segment was $243,300, slightly lower than $269,800 in the preceding quarter and $249,100 in fourth quarter 2009. However, utilization in the quarter increased to 73% from 58% in the last quarter and 55% in the year-ago quarter.

Currently, the company has 77% of the rig days in 2011 under contract along with 35% contracted in 2012, 14% in 2013 and none in 2014.

Independent Leg Jackup: Revenues from the segment came in at $12.8 million during the quarter, down substantially from the year-ago quarter level of $43.9 million and preceding quarter profit of $24.7 million. The segment faced an operating loss of $11.6 million versus the year-ago profit of $3.1 million and loss of $0.2 million in the previous quarter.

Average dayrate in this segment increased 13.8% year over year and 50.9% sequentially to $139,400. Utilization came in at 14% in the reported quarter, below the rates of 56% in the prior-year quarter and 41% in the last quarter.

Liquidity

Pride International incurred capital expenditures of $175 million in the fourth quarter (including $84 million targeted toward the deepwater expansion program), netting $1,151 million for the full year (of which $825 million was spent on deepwater fleet expansion).

As of December 31, 2010, cash balance stood at $485 million with a debt balance of $1.8 billion, representing a debt-to-capitalization ratio of 29%.

Outlook

We believe that the emergence of Pride as a deepwater contractor will help it sustain a compelling long-term story with an investment grade credit rating and substantial contract backlog. Moreover, the company enjoys strong leverage to the positive outlook for oilfield activities in offshore Brazilian and Gulf of Mexico markets.

However, in our opinion, Pride’s lack of focus in jackups and mid-water floaters is a major drawback for long-term mid-water contracts. The company is also exposed to downward pressure on utilization from newbuild capacity and weakness in the floater market. We are maintaining our long-term Neutral recommendation on the stock.

Pride International, which competes with peers such as Diamond Offshore Drilling (DO) and Transocean Ltd. (RIG), currently retains a Zacks #3 Rank (short-term Hold rating).

 
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