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Leading oilfield services’ company Weatherford International Ltd.’s (WFT - Analyst Report) fourth quarter 2013 adjusted earnings of 7 cents per share came in line with the Zacks Consensus Estimate. The results however rose substantially from the year-earlier adjusted earnings of a penny. For full-year 2013, the company’s profit of 60 cents per share lagged the Zacks Consensus Estimate of 61 cents.

Total revenue, in the fourth quarter, decreased to $3,738.0 million from $4,058.0 million in the year-ago period, and also came below the Zacks Consensus Estimate of $3,865.0 million. Full-year 2013 total revenue came at $15,263.0 million, flattish with 2012 revenues of $15,215 million. This was also below the Zacks Consensus Estimate of $15,337 million.

Operational Performance

North American revenues for the fourth quarter were $1.57 billion, down 2% sequentially and 7% from the same quarter in the prior year. This was due to lower activity in the U.S. markets as severe weather disruptions impacted service product lines. Fourth quarter operating income was flat sequentially at $216 million and down $10 million, or 4%, from the same quarter in the prior year.

Middle East/North Africa/Asia posted revenues of $821 million, which was up $2 million sequentially, and down $30 million, or 4%, from the same quarter in the prior year. The current quarter's operating income of $50 million decreased $19 million, or 28%, sequentially and decreased 14% from the same quarter in the prior year. Short-term operational disruptions in the Middle East during the fourth quarter impacted sequential operating income, primarily in the Land Rig Drilling and Well Construction product lines.

Europe/West Africa/FSU posted revenues of $688 million, which were flat sequentially and 3% higher than the same quarter in the prior year. The sequential revenues were impacted by seasonal disruptions in Russia and the North Sea, which were offset by improvements in other parts of Europe and Sub-Sahara Africa. The current quarter's operating income of $47 million decreased $56 million, or 54% sequentially and declined 20% year over year.

Latin American revenues of $657 million were down $56 million, or 8% sequentially, and $199 million or 23% year over year. The fourth quarter's operating income of $62 million was down $53 million, or 46% sequentially and $63 million, or 50% from the comparable quarter in the prior year.


As of Dec 31, 2013, Weatherford had $435 million in cash and cash equivalents and long-term debt was $7,061 million. Weatherford spent approximately $1,575 million in capital expenditures during 2013.


In 2014, the company expects revenue growth in North America, Europe/Sub Sahara Africa/Russia and Middle East/North Africa/Asia Pacific regions. However, the company expects the Latin America region to report falling numbers.

Overall margins will improve with lower costs and growth in more profitable core businesses. The company expects adjusted earnings per share to range between $1.10 and $1.20.

The annual effective tax rate is expected in the range of 25% to 35%. Further cost reductions and improvements in capital efficiency lead to a positive outlook on the company.

Our Recommendation

We remain optimistic on Weatherford’s operational and financial leverage to international growth in 2014. But the company’s debt-heavy balance sheet, weak free cash flow as well as competition from larger peers such as Schlumberger Limited (SLB - Analyst Report) are causes of concern.

Weatherford currently carries a short-term Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Matrix Service Company (MTRX - Snapshot Report) and New Source Energy Partners L.P. (NSLP - Snapshot Report). All these stocks hold a Zacks Rank #1 (Strong Buy).


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