Why Is Helmerich & Payne (HP) Down 2.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Helmerich & Payne (NYSE:HP). Shares have lost about 2.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Helmerich & Payne due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Helmerich & Payne Q4 Earnings Beat on U.S. Land Strength

Helmerich & Payne delivered a comprehensive fiscal fourth-quarter 2018 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 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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 9.52% due to these changes.

VGM Scores

Currently, Helmerich & Payne has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Helmerich & Payne has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.