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Leading oilfield services company, Weatherford International Ltd.’s (WFT - Analyst Report) first-quarter 2014 adjusted earnings of 13 cents per share beat the Zacks Consensus Estimate of 11 cents. The results, however, dropped from the year-earlier adjusted earnings of 15 cents. The earnings declined mainly due to weakness in North American and Latin American earnings.

Total revenue in the first quarter decreased 6.3% year over year to $3,596.0 million from $3,837 million in prior-year quarter and missed the Zacks Consensus Estimate of $3,737 million.

Operational Performance

North American revenues decreased 4.8% year over year to $1,610.0 million. The relative decline in the U.S. land rig count as well as oversupply of hydraulic fracturing capacity resulted in the loss. The operating income came at $201.0 million compared with $224.0 million in the year-ago quarter.

Middle East/North Africa/Asia revenues fell marginally by 0.5% year over year to $781 million. The segment’s operating income grew 20% year over year to $54 million. The decline is attributable to typical seasonal effects in China and Australia. The growth in operating income is attributable to the resumption of some activity in the Middle East.

Europe/Sub-Sahara Africa/Russia posted revenues of $664.0 million, up 4.9% year over year. The segment’s operating income dropped by 16.9% year over year to $54.0 million.

Latin American revenues plunged 25.6% year over year to $541.0 million. Operating income from this segment decreased to $93.0 million from the year-ago level of $98.0 million.

Liquidity

As of Mar 31, 2014, Weatherford had $367 million in cash and cash equivalents and long-term debt was $7,039 million. Weatherford spent $286 million in capital expenditures during the quarter.

Guidance

With respect to 2014, the company expects growth in its North American, Europe/Sub-Sahara Africa/Russia  and Middle East/North Africa/Asia businesses, while revenues in Latin American business is expected to decline. Weatherford expects moderate growth in margins with lower costs and growth in its more profitable core businesses.

Weatherford estimates earnings per share in 2014 to range between $1.10 and $1.20. The annual effective tax rate in 2014 is expected between 25% and 30%. Capital expenditures for the year is projected at $1.3 billion.

Our Recommendation

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

Weatherford holds a Zacks Rank #3 (Hold). However, there are better-ranked stocks in the oil and gas sector – Range Resources Corp. (RRC - Analyst Report) and Helmerich & Payne, Inc. (HP - Analyst Report) with a Zacks Rank #1 (Strong Buy) – that are expected to outperform the market.

Read the Full Research Report on RRC
Read the Full Research Report on SLB
Read the Full Research Report on WFT
Read the Full Research Report on HP


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