SeaDrill (SDRL) Q2 Earnings Beat, Revenues Miss Estimates

Offshore contract driller, SeaDrill Limited (NYSE:SDRL) , reported strong second-quarter 2016 earnings owing to a decrease in operating expenses. The company, however, registered poor quarterly revenues due to underperformances by Jack-up Rigs and Floaters.

Earnings per share – excluding one-time items − came in at 59 cents, which beat the Zacks Consensus Estimate of 41 cents. The bottom line, however, decreased significantly from the year-ago adjusted figure of 77 cents per share.

Total operating revenue of $868 million was down 24.3% from $1,147 million in second-quarter 2015. The top line also lagged the Zacks Consensus Estimate of $890 million.

Segmental Analysis

Floaters: This segment reported revenues of $610 million compared with $786 million in the year-ago quarter. Net operating income of $270 million was higher than the prior-year quarter figure of $257 million.

Jack-up Rigs: The segment registered revenues of $234 million as against $328 million in the prior-year quarter. Net operating income plummeted from the second-quarter 2015 figure of $123 million to $92 million.

Other: Revenues of $24 million were lower than $33 million reported in the prior-year quarter. Operating profit of $2 million also decreased from the prior-year profit of $4 million.

Backlog

As of Aug 24, 2016, total order backlog of SeaDrill was $3.6 billion.

Expenses

SeaDrill incurred operating expenses of $509 million in the reported quarter. This reflects a significant decline from the year-ago quarter figure of $694 million.

SEADRILL LTD Price, Consensus and EPS Surprise

Like other offshore contract drillers, SeaDrill has decided to focus on controlling costs amid plummeting crude prices. As part of the initiative, SeaDrill has trimmed its headcount by 8% since the end of 2015 to 6,500.

Capital Expenditure & Balance Sheet

As of Jun 30, 2016, SeaDrill had cash and cash equivalents of $1,287 million and long-term debt of $10,064 million (including current portion). The debt-to-capitalization ratio was approximately 50.7%.

Guidance

The company projects third-quarter 2016 operating income of almost $183 million, which is substantially lower than the second-quarter level of $364 million. SeaDrill raised its cost-cutting target for the year by $50 million to $390 million and claimed that it has already achieved $285 million in savings during the first six months of 2016.

Zacks Rating

Headquartered in London, SeaDrill is one of the leading offshore drilling contractors in the world. The company has one of the youngest drilling fleet among the offshore drilling contractors and is capable of operating in challenging environments.

The company currently carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the broader energy sector are Murphy USA Inc. (NYSE:MUSA) , Enbridge Energy Partners, L.P. (NYSE:EEP) and China Petroleum & Chemical Corp. (NYSE:SNP) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).