Rowan Beats Zacks Estimates - Analyst Blog

Rowan Companies Inc. (RDC) recorded second-quarter 2010 earnings of 79 cents per share, well above the Zacks Consensus Estimate of 68 cents, on the back of solid contract drilling operations.  However, the quarter’s earnings were lower than the year-ago earnings of 85 cents.

Revenues in the quarter were $490.1 million, up nearly 2% year over year, and ahead of the Zacks Consensus Estimate of $455 million.

Operational Performance

The company’s drilling operations generated revenues of $328.3 million, up 2% year-over-year attributable to the offshore fleet additions and higher land rig utilization. This was partially offset by the lower average day rates. The company’s continued focus on cost effectiveness drove the gross drilling margin to 58%, compared with 57% in the year-earlier quarter. Net income decreased to $124.0 million from the year-earlier level of $127.9 million due to higher depreciation and selling, general and administrative expenses in the quarter.

Rowan's manufacturing operations’ external revenues remained relatively flat on a year over year basis at $161.4 million. Gross manufacturing margin increased to 15% from 9% in the year-earlier quarter. Net income was $6.4 million, up substantially from the year-ago level of $2.7 million.

The company’s North Sea rigs experienced an average dayrate of $269,300 (versus $285,400 in the year-ago quarter) while the overall dayrate of all offshore rigs was $174,500 (versus $177,200 in second-quarter 2009). Average utilization of the company’s offshore rigs and land rigs were 75% and 78% versus 78% and 60%, respectively, in the year-earlier quarter.

At the end of the quarter, cash balance was $610.9 million and long-term debt (including current maturities) stood at $820.2 million, while debt-to-capitalization ratio was 20.0%.

Outlook

The company continues to witness robust demand for high-spec jackup rigs. Rowan’s premium high specification rig fleet enjoys greater utilization and higher dayrates than most other shallow water fleets. With the objective to grow its offshore drilling business, Rowan plans to buy Norway's Skeie Drilling & Production ASA (“SKDP”) for a total consideration of nearly $1.2 billion. We believe the company’s earnings and cash flow visibility will remain positive in the near to medium term with this deal and its solid backlog position.

We currently maintain our Neutral recommendation for Rowan as we believe all these positives are already priced in.