Leading oilfield services company Weatherford International Ltd. (WFT) reported better-than-expected third quarter 2010 adjusted earnings of 18 cents per share. The results surpassed the Zacks Consensus Estimate of 17 cents and year-earlier profit of 9 cents. The improvement was mainly driven by continued strength in North America, which was offset by lackluster international results.
Total revenue in the quarter increased 18% year over year to $2.5 billion, but was below the Zacks Consensus Estimate of $3.8 billion.
An improving North American drilling scenario has been reflected in results of the industry players. Yesterday, Halliburton Company (HAL) also reported strong results driven by the strength and sustainability of the North American onshore activity level.
Operational Performance
North American revenues climbed 77% year over year to $1,099 million. Sequentially, revenue was up 19%. Gains from the U.S. onshore activity and seasonal recovery in Canada drove the sequential improvement, which was partially offset by the weak Gulf of Mexico environment.
This segment posted an operating income of $202 million compared with $33 million in the year-ago period. Sequentially, operating income grew 56%.
Middle East/North Africa/Asia revenues upped 1% year over year and remained flat sequentially at $603 million. The sequential results were driven by the strong performances in Iraq and Kuwait.
However, the segment’s operating income decreased 33% year over year and 13% sequentially to $68 million. The decline was mainly due to start-up expenses and operator delays.
Europe/West Africa/FSU posted revenues of $496 million, up 23% year over year but down 2% sequentially. The year-over-year growth was mainly attributable to the acquisition of TNK-BP’s oilfield service business. The sequential loss was due to poor results in Norway and parts of Sub-Sahara Africa.
The segment’s operating income improved 37% year over year to $61 million, while it fell 3% on a sequential basis.
Latin American revenues plunged 36% year over year and 18% sequentially to $336 million, mainly due to lower activity levels in Mexico. Brazil and Colombia remained strong in the quarter.
Operating income from this segment was $42 million, down 23% from the year-ago quarter and up 10% from the previous quarter.
Weatherford had $2.7 billion in cash and unused credit facility at the end of the third quarter. The company recently instituted a $1.75 billion of credit facility, completed $1.4 billion debt offering and launched $700 million tender offer.
As of September 30, 2010, the company’s debt was $7.3 billion, representing a debt-to-capitalization ratio of 42.2%. Weatherford’s capital expenditures were approximately $269 million during the quarter.
Outlook
Weatherford guided fourth quarter 2010 earnings of 23 cents per share. The company also provided fiscal 2011 earnings guidance of $1.30 per share. We remain optimistic on Weatherford based on its operational and financial leverage to international growth in 2011.
Though improved liquidity reduces the risk associated with a Department of Justice settlement and the probability of an equity offering, we are concerned about the weakness in Latin America and near-term growth pace in international margins. Hence, our long-term Neutral recommendation remains unchanged at this stage with the Zacks #2 Rank (short-term Buy rating) on the company.
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