Weatherford Falls Short - Analyst Blog

Leading oilfield services company, Weatherford International Ltd. (WFT) reported fourth quarter 2010 adjusted earnings of 21 cents per share, below the Zacks Consensus Estimate of 23 cents. However, the quarterly results grew substantially from the year-earlier profit of 3 cents. The year-over-year improvement was mainly driven by North American activity accompanied by strong performance in Canada.

The quarter's revenues expanded 20% year over year to a record $2.9 billion.

An improving North American drilling scenario has been reflected in the results of the industry players. Yesterday, Baker Hughes Incorporated (BHI) reported strong results driven by the strength and sustainability of the North American onshore activity level.

Operational Performance

North American revenues climbed 70% year over year to $1,253 million. Sequentially, revenue was up 14%. Gains from the U.S. onshore activity as well as robust activity in Canada drove the sequential improvement, which was partially offset by reduced operations in the Gulf of Mexico region.

This segment posted an operating income of $252 million compared with $42 million in the year-ago period. Sequentially, operating income grew 25%.

Middle East/North Africa/Asia revenues upped 15% year over year and 13% sequentially to $681 million. The sequential results were driven by impressive performances in Iraq and Algeria, while the yearly boom was mainly from revenue gains in Iraq and China.

However, the segment's operating income decreased 35% year over year and 22% sequentially to $53 million. The decline was mainly due to asset write-offs and severe weather in Australia.

Europe/West Africa/FSU posted revenues of $524 million, up 10% year over year and 6% sequentially. The sequential growth was mainly attributable to the strong performance in the United Kingdom.

The segment's operating income improved 25% year over year to $61 million, but remained flat on a sequential basis.

Latin American revenues plunged 28% year over year but shot up 31% sequentially to $442 million. Notably, Brazil and Colombia remained strong in the quarter.

Operating income from this segment was $54 million, up 10% from the year-ago quarter and 30% from the previous quarter.

Liquidity

Weatherford had $415.8 million in cash and cash equivalents at the end of the quarter. As of December 31, 2010, the company's debt was $6.8 billion, representing a debt-to-capitalization ratio of 40.5% (versus 42.2% recorded in the preceding quarter). Weatherford's capital expenditures were approximately $259 million during the quarter.

Outlook

Weatherford guided first quarter 2011 earnings of 27 cents per share. The company also reiterated its fiscal 2011 earnings guidance at $1.30 per share. We remain optimistic on Weatherford based on its operational and financial leverage to international growth in 2011. The company is also hopeful on international growth going forward mainly in Eastern Hemisphere and Latin America and robust activity in North America.

However, we remain concerned about the company's debt-heavy balance sheet and its weak capability to generate free cash flow. Hence, 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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WEATHERFORD INT (WFT): Free Stock Analysis Report
 
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