Rowan Companies Inc. (RDC) recorded fourth-quarter 2011 earnings from continuing operations of 27 cents per share, failing to meet the Zacks Consensus Estimate of 31 cents and falling by a penny from the year-earlier level.
However, total revenue expanded almost 32% year over year to $275.1 million in the reported quarter, and was on par with our expectation. The outperformance was mainly attributable to increased activity from fleet additions and rig start-ups and somewhat higher average day rates between periods.
For full-year 2011, earnings were $1.07 per share, down 52.4% from the year-earlier level. The reported figure also failed to match our expectation of $1.17.
Total revenue for the full year declined nearly 8% year over year to $939.2 million and lagged the Zacks Consensus Estimate by almost 15%.
Dayrates and Utilization
The company’s Gulf of Mexico rigs experienced a dayrate of $114,200 (versus $126,600 in the year-ago quarter), Middle East rigs saw a dayrate of $137,600 (versus $132,000 in the year-ago quarter) and North Sea rigs–$218,600 (versus $175,700 in the year-ago quarter). The overall dayrate of all offshore rigs was $149,900 (versus $142,500 in the fourth-quarter 2010). Average utilization of the company’s rig improved to 68% from 65% in the year-earlier quarter.
Financials
As of December 31, 2011, cash balance was $438.9 million and long-term debt (including current maturities) was $1,134.3 million. Debt-to-capitalization ratio was 20.8% versus 20.7% in the prior quarter.
Our Take
Houston, Texas-based Rowan Companies Inc. is a provider of international and domestic contract drilling and aviation services. During 2011, the company divested its manufacturing and land drilling operations and intends to reinvest the proceeds in a major expansion of its core business–offshore drilling. The majority of Rowan’s fleet is considered to be high-end premium jackups with a long-term strategy in place. As part of its expansion, the company has ordered three drillships to be built by Hyundai Heavy Industries that will offer industry-leading capabilities. Again, the company foresees North Sea and Egypt as the largest source of revenues this year.
As a part of Rowan’s effort to diversify its markets geographically, the company has also made the decision to move its official headquarters to the U.K., since most of its business comes from outside the U.S.
However, considering the volatile macro backdrop along with operational hindrances that could put pressure on the company’s performance in the upcoming quarters, we see a restricted upside potential for Rowan’s shares and expect the company to be on par with the industry. Therefore, we maintain our long-term Neutral rating.
Rowan, which competes with peers such as Noble Corporation (NE) and Ensco Plc (ESV), also holds a Zacks #3 Rank, which translates to a short-term Hold rating.
