Rowan Companies Inc. (RDC) reported better-than-expected fourth quarter 2009 results. Quarterly earnings were 52 cents per share versus the Zacks Consensus Estimate of 50 cents and year-earlier earnings of $1.28. Revenue for the quarter was $399.8 million, down approximately 35% year over year.
Though the earnings came in above expectations on the back of an increase in the U.S. land rig and worldwide jackup activity as well as lower operating costs, the year-over-year negative comparison was due to several factors, including significantly lower rig utilization rate and lower dayrates in some regions.
Estimate Revisions Trend
We see an uptrend in estimate revisions. In the last 30 days, 7 of the 26 analysts covering the stock have raised their estimates for full fiscal 2010, while only one analyst moved in the opposite direction. One analyst raised his or her estimate in the last 7 days, but no one has moved in the opposite direction over that time.
The company’s earnings surprise for the preceding four quarters varies between 3.9% and 23.9%, with the average being 13.0%.
Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $2.11 per share, which is well below the full fiscal 2009 earnings of $2.98.
Operational Performance
The company’s drilling operations generated revenues of $255.3 million, down 34% year over year, due primarily to lower rig utilization. The gross drilling margin was 52%, compared to 62% in the year-earlier quarter and 53% in the previous quarter. Net income for the quarter was $76 million, down 66% from the fourth quarter of 2008.
Rowan’s manufacturing operations generated external revenues of $144.5 million, down 36% year over year. Gross manufacturing margin was 17%, compared to 25% in the year-earlier quarter and 13% in the previous quarter. Net income for the quarter was $9.1 million, down 78% year over year.
The company’s North Sea rigs experienced an average dayrate of $195,900 (vs. $272,100 in the year-ago quarter) while the overall dayrate of all offshore rigs was $167,700 (vs. $170,100). Average utilization of the company’s offshore rigs and land rigs were 63% and 59% versus 99% and 90%, respectively, in the year-earlier quarter.
At the end of the quarter, cash balance was $639.7 million and long-term debt stood at $852.4 million (debt-to-capitalization ratio was 21.5%).
Outlook
While the industry has been currently witnessing increased activity and tendering in the global jackup market, the Middle East, North Sea and Gulf of Mexico regions have been the most significant for Rowan’s fleet. In addition, management stated that the company has obtained commitments for several land rigs in the reported quarter, with a strong recovery in the U.S. land rig market.
Although deepwater fundamentals are the most compelling in the long term, we believe that land drillers and jackup leveraged companies such as Rowan will likely outperform in the near term as their recovery continues. We are currently Neutral on the Rowan shares.
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