Helmerich & Payne (HP) Q4 Earnings Beat On Solid US Land Unit

Helmerich & Payne Inc. (NYSE:HP) recently released fiscal fourth-quarter 2018 results, wherein it delivered a comprehensive beat on the back of better-than-expected performance from the U.S. Land business, backed by higher rig margins and revenues. Precisely, operating income from the U.S. Land unit came in at $64.5 million, surpassing the Zacks Consensus Estimate of $60 million.

Importantly, after posting adjusted operating loss over the past 10 quarters, the company finally witnessed a turnaround this season, posting quarterly earnings of 19 cents a share, nominally surpassing the Zacks Consensus Estimate of 18 cents. The bottom line also compares favorably with the year-ago quarter’s loss of 13 cents a share. Moreover, revenues of $696.8 million outpaced the Zacks Consensus Estimate of $680 million. The top line also surged around 31% from the year-ago level.

Segmental Performance

U.S. Land: During the quarter, operating revenues totaled $587.2 million (accounting for 84.3% of the total revenues), up 33.6% year over year. The average rig revenue per operating day was $24,449, up 11.4% from the year-ago period and the average rig margin per day also increased 28.6% to $10,340. Moreover, utilization levels of 65% in the quarter under review (versus 55% in fourth-quarter fiscal 2017) resulted in an operating income of $64.5 million at the segment, marking a turnaround from the year-ago loss of $4.2 million.

Offshore: Helmerich & Payne’s Offshore revenues came in at around $38.5 million compared with $32.5 million in the prior-year quarter, on the back of increased activity levels. Notably, rig utilization was 75%, up from the year-ago level of 67%. Further, daily average rig revenues were up 4.7% to $36,424. While the average rig margin per day moved down a bit by 5%, its impact was more than offset by higher average rig revenues and rig utilization. This resulted in the generation of operating income of $8.2 million vis a vis $5.1 million in the year-ago quarter.

International Land: Helmerich & Payne’s International Land operations generated revenues of $59.4 million, up from $55.1 million in the prior-year quarter on increased revenue days and higher activity levels to 55% from 37% a year ago. Nonetheless, the average daily rig revenues in the quarter under review were $30,909, down 23.7% from the corresponding period last year and rig margin per day was $8,658, decreasing from the year-ago figure of $12,386. This resulted in the segment’s operating loss to total $7.8 million, wider than the year-ago quarter’s $2 million. Further, the bottom line from the segment deteriorated sharply from the prior-quarter’s income of $4.3 million amid lower revenues and rig margins.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $466.6 million on capital programs. As of Sep 30, 2018, the company had approximately $284.4 million in cash, and a long-term debt amounting to $493.9 million (debt-to-capitalization ratio of 10.1%).

Guidance

The Tulsa, OK-based company expects activity in the U.S. land segment to rise 4-5% sequentially during the first quarter of fiscal 2019. While average rig revenues per day are likely to be in the band of $24,500-$25,000, daily average rig cost is expected within $14,500-$14,900 during the said quarter.

Coming to the offshore segment, Helmerich & Payne expects average rig margin per day within $8,500-$11,000 in first-quarter fiscal 2019 and revenue days to increase 5% sequentially.

The international land segment revenue days will likely decrease 0-2% sequentially during the quarter, while average rig margin per day is expected within $8,000-$9,000.

For fiscal 2019, Helmerich & Payne projects a capital budget of $650-$680 million.

Zacks Rank and Key Picks

Currently, Helmerich & Payne carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space include EOG Resources, Inc. (NYSE:EOG) , Energen Corporation (NYSE:EGN) and Hess Corporation (NYSE:HES) , each sporting a Zacks Rank #1 (Strong Buy). One can see the complete list of today’s Zacks #1 Rank stocks here.

EOG Resources surpassed earnings estimates in each of the trailing four quarters, with average of 18.07%.

Energen delivered average positive earnings surprise in each of the preceding four quarters, with the average being 18.62%.

Hess pulled off average positive earnings surprise of 230.48% in the trailing four reported quarters.

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