The oilfield service provider, Weatherford International Ltd. (WFT) revised its earnings forecast for the first quarter of 2011 due to political disruption in North Africa and severe weather conditions in Australia. The company also revised its effective tax rate guidance for full-year 2011.
The Switzerland-based Weatherford lowered its per-share earnings guidance to 18 cents from its prior expectation of 27 cents for first-quarter 2011. In a filing with Securities and Exchange Commission, the company stated that the political instability in Egypt, Tunisia, Libya, Yemen and Bahrain, and the consequential volatility in oil prices have compelled Weatherford to cut its earnings expectation. Notably, these five countries account for 3% of Weatherford’s total revenue.
For the full year, the company has withdrawn its earnings guidance. Previously, it had guided its earnings at $1.30 per share for 2011.
Additionally, weather-related hindrances in Australia (flood issues in its eastern states and Cyclone Yasi in its northeastern coast) have upset the company’s operations. Weatherford expects effective tax rate of 27% for 2011, which is considerably higher than its prior guidance of 20%.
Earlier this month, the company found errors related to income taxes and delayed its annual filing. Weatherford also intends to restate its financial statements from 2007 through 2010 by about $500 million.
Weatherford registered lower-than-expected adjusted fourth quarter 2010 earnings. However, the quarterly results grew substantially from the year-earlier quarter, on the back of increased North American activity accompanied by strong performance in Canada.
Particularly, its Middle East/North Africa/Asia segment experienced lower operating income in the fourth quarter of 2010 versus the year-ago period, mainly due to asset write-offs and Australian disruption.
Although we remain optimistic on Weatherford’s operational and financial leverage to international growth in 2011, the ongoing political and weather turmoil and its implications on the company’s results raise apprehensions.
Moreover, Weatherford’s debt-heavy balance sheet (representing a debt-to-capitalization ratio of 40.5% in the last quarter), its weak capability to generate free cash flow as well as competition from its peer company, Baker Hughes Incorporated (BHI) are also causes of concern.
Consequently, our long-term Neutral recommendation remains unchanged at this stage and the company holds a Zacks #3 Rank (short-term ‘Hold’ rating).
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