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Why Is Transocean (RIG) Down 8.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Transocean (RIG - Free Report) . Shares have lost about 8.4% in that time frame, underperforming the S&P 500.

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

Second-Quarter 2018 Results

Transocean reported an adjusted loss of 4 cents per share in the second quarter of 2018, narrower than the Zacks Consensus Estimate of 17 cents. The improved results came on the back of higher-than-anticipated revenues from the Ultra-Deepwater floaters. Revenues from the Ultra-Deepwater Floaters came in at $470 million, comfortably surpassing the Zacks Consensus Estimate of $396 million.

However, the bottom line deteriorated from break-even earnings per share a year ago amid increased operational and general/administrative costs due to the acquisition of Songa Offshore and lower dayrates.

Revenues of $790 million topped the Zacks Consensus Estimate of $754 million on higher fleet utilization. The top line also increased 5.2% year over year on the back of higher contract drilling revenues from the Harsh-Environment floaters.

Transocean’s High-Specification floaters contributed about 91.4% to total contract drilling revenues, while Deepwater floaters, Midwater floaters, High-Specification Jackups accounted for the remainder. In the quarter under review, revenues from Ultra-Deepwater and Harsh Environment floaters totaled $470 million and $252 million, respectively.

Revenue efficiency in the quarter was 97.4%, reflecting an increase from the prior-quarter level of 91.5%. Revenue efficiency, however, remained unchanged from the year-ago quarter.

Costs

Transocean’s operating and maintenance expenses rose 30.2% to $431 million year over year. General and administrative expenses increased 48.6% from the year-ago figure to a total of $52 million.

In the second quarter of 2018, cash flow from operating activities came in at $3 million compared with $103 million and $319 million recorded in the first quarter of 2018 and second-quarter 2017, respectively. The sharp decline was on account of higher interest outgo.

Dayrates and Utilization

Compared with the second quarter of 2017, dayrates fell almost 17.4% in the quarter (from $329,000 to $308,300), unfavorably impacted by decline in the Midwater, Deepwater and Ultra Deepwater floaters.

However, overall fleet utilization was 57% during the quarter, up from the utilization rate of 44% and 52% recorded in the year-ago quarter and last reported quarter, respectively.

Backlog

Transocean’s strong backlog, which stands at $11.7 billion as of July 2018, reflects steady demand from customers. The backlog includes $405 million in new orders awarded during the quarter under review.

Capital Expenditure & Balance Sheet

Transocean spent $39 million on capital expenditure in the first quarter of 2018. As of Jun 30, 2018, Transocean had cash and cash equivalents of $2,506 million. Long-term debt of the company was $7,814 million, with a debt-to-capitalization ratio of 38.7%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.09% due to these changes.

VGM Scores

At this time, Transocean has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Transocean has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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