Helmerich & Payne Posts Strong 4Q - Analyst Blog

Contract drilling services provider, Helmerich & Payne Inc. ( ">HP )  reported solid results for the fourth fiscal quarter of 2010 (three months ended September 30, 2010). As has been the case with peers that have already reported – Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR), quarterly earnings were helped by improving U.S. land drilling operations. Additionally, Helmerich & Payne benefited from better dayrates for its high-specification rigs. 

Earnings per share from continuing operations came in at 77 cents, surpassing the Zacks Consensus Estimate of 70 cents and the year-ago profit of 51 cents. Revenues of $559.0 million were up 56.0% from the fourth quarter 2009 level and also beat our projection by 7.7%.

For its fiscal year ended September 30, 2010, Helmerich & Payne reported income from continuing operations (excluding gains from non-operating items) of $2.63 per share, down from $3.53 per share in 2009 but outperformed the Zacks Consensus Estimate of $2.51. The year-over-year decline can be attributed to lower average rig revenue per day and higher operating costs. 

Segmental Performance

U.S. Land Operations: During the quarter, operating revenues totaled $436.0 million (78% of total revenue), up 62.0% year over year. Average rig revenue per operating day was $24,385, down 5.8%, while average rig margin per day decreased 22.1% to $11,331. However, utilization levels rose to 82% (from 55% in the fourth fiscal quarter of 2009). As a result, segment operating income improved 31.9% from the year-earlier quarter to $118.9 million.

Offshore Operations: Helmerich & Payne's offshore revenues were up 4.8% year over year to $49.5 million. Daily average rig revenue decreased 11.0% to $42,312 but average rig margin per day improved 9.2% to $22,581. Segment operating income, at $13.1 million, increased 9.0%. Rig utilization was 78% for both periods.

International Land Operations: International land operations recorded revenues of $69.8 million, up from $39.2 million in the previous-year quarter. Average daily rig revenue was $33,194, up 7.3%, while rig margin per day was $12,573, as against $5,986 in the year-ago period. As a result, the segment incurred a profit of $15.5 million during the quarter, compared to the $1.5 million loss recorded in the fourth quarter of fiscal 2009. Additionally, activity levels rose to 78% from 50% a year ago.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $109.4 million on capital programs. As of September 30, 2010, the company had approximately $63.0 million in cash, while long-term debt stood at $360.0 million (debt-to-capitalization ratio of 11.4%).

Outlook

Management indicated that rig counts in the U.S. land sector, though tracking well above expectations, are still about 20% below the previous cyclical peak. Importantly, Helmerich & Payne informed that it has gone past its previous record during that peak and now have the highest level of activity in the history of the company. With its newest and most technologically advanced land rig fleet, Helmerich & Payne is well positioned to take advantage of the rebounding market. The company further informed that it signed contracts for 4 newbuild technologically-advanced FlexRigs, in addition to the 19 announced earlier this year.  

Helmerich & Payne currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
HELMERICH&PAYNE (HP): Free Stock Analysis Report
 
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