Helmerich & Payne Outperforms - Analyst Blog

Contract drilling services provider, Helmerich & Payne Inc. (HP) reported solid results for the third fiscal quarter of 2010 (three months ending June 30, 2010), helped by improving U.S. land drilling operations.
 
Earnings per share, excluding an impairment charge on assets seized in Venezuela , came in at 61 cents, surpassing the Zacks Consensus Estimate of 59 cents. Revenues of $483.4 million were also ahead of Zacks Consensus Estimate of $449.0 million.
 
Year-Over-Year Comparison
 
Compared with the year-ago period, Helmerich & Payne’s adjusted earnings per share declined 4.7% (from 64 cents to 61 cents), pulled down by lower income from offshore drilling as a result of the U.S. deepwater drilling moratorium in the Gulf of Mexico. However, revenues were 25.8% greater than that achieved during the third fiscal quarter of 2009, reflecting robust U.S. land drilling and international sales.
 
U.S. Land Operations
 
During the quarter, operating revenues totaled $367.0 million (76% of total revenue), up 30.0% year over year. Average rig revenue per operating day was $23,690, down 16.4%, while average rig margin per day decreased 30.5% to $11,151. However, utilization levels rose to 76% (from 51% in the third fiscal quarter of 2009). As a result, segment operating income improved 6.8% from the year-earlier quarter to $103.1 million.
 
Offshore Operations
 
Helmerich & Payne’s offshore revenues were down 4.5% year over year to $53.1 million. Daily average rig revenue increased marginally (by 1.3%) to $46,138 while average rig margin per day improved 12.0% to $20,782. Segment operating income at $11.2 million, decreased 11.7%. Rig utilization, which was 93% in the same period of 2009, came down to 78%.
 
International Land Operations
 
International land operations recorded revenues of $60.0 million, up from $43.9 million in the previous-year quarter. Average daily rig revenue was $30,669, down 16.0%, while rig margin per day was $10,192, as against $12,421 in the previous-year quarter. Despite this, the segment incurred a profit of $9.9 million during the quarter, 52.4% above the $6.5 million incurred in the third fiscal quarter of 2009, as activity levels rose to 76% from 69% a year ago.
 
Capital Expenditure & Balance Sheet
 
During the quarter, Helmerich & Payne spent approximately $77.5 million on capital programs. As of June 30, 2010, the company had approximately $77.7 million in cash and long-term debt of $390.0 million (debt-to-capitalization ratio of 12.6%).
 
Outlook
 
Management indicated that rig utilization in the U.S. land drilling segment continues to pick up and it sees a seasonal rebound in Canadian activity. Clients are planning to increase their spending plans in 2010 and Helmerich & Payne, with its newest and most technologically advanced land rig fleet, is well positioned to take advantage of the rebounding market. The company further informed that it signed contracts to build and operate nine additional FlexRigs.
 
Helmerich & Payne is currently rated as Zacks #2 Rank (Buy), implying that the stock is expected to do better than the broader U.S. equity market over the next one to three months.