Helmerich & Payne Beats Estimates

Contract drilling services provider Helmerich & Payne Inc. (HP - Analyst Report) reported strong results for the first fiscal quarter of 2012 (three months ended December 31, 2011), driven by a robust U.S. land drilling business.

Earnings per share from continuing operations (excluding special items) came in at $1.29, comfortably surpassing the Zacks Consensus Estimate of $1.16 and way above the year-ago adjusted profit of 94 cents.

Revenues of $732.6 million were up 23.2% from the first quarter 2011 and also just about beat our projection of $730.0 million.

Segment Performance

U.S.Land Operations: During the quarter, operating revenues totaled $617.8 million (85% of total revenue), up 29.6% year over year. Average rig revenue per operating day was $26,861, up 7.7%, while average rig margin per day increased 11.9% to $14,569. Utilization levels rose to 91% (from 84% in the first fiscal quarter of 2011). As a result, segment operating income improved significantly (by 41.9%) from the year-earlier quarter to $224.7 million.

Offshore Operations: Helmerich & Payne’s offshore revenues were up 13.2% year over year to $50.8 million. Daily average rig revenue increased 18.3% to $53,644, while average rig margin per day edged up 22.7% to $22,171. This drove up the segment operating income 35.6% from the previous year period to $12.2 million, further helped by the improvement in rig utilization that went up to 84% for the period, against 71% a year ago.

InternationalLandOperations: International land operations recorded revenues of $60.7 million, down from $69.0 million in the previous-year quarter. Average daily rig revenue was $31,072, down 8.0%, while rig margin per day was $9,015, against $11,625 in the year-ago period. As a result, segment profitability took a severe beating, down to just $7.9 million, compared to $14.4 million in the first quarter of fiscal 2011. However, activity levels rose to 78% from 76% a year ago.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $256.9 million on capital programs. As of December 31, 2011, the company had approximately $347.9 million in cash, while long-term debt stood at $235.0 million (debt-to-capitalization ratio of 6.4%).

Outlook & Recommendation

Management indicated that with the industry shifting towards oil and liquids-rich targets, there is high demand for modern, technologically sophisticated rigs. With its newest and most technologically advanced land rig fleet, Helmerich & Payne is well positioned to take advantage of this scenario, while continuing to gain market share and adding value for its shareholders and customers. 

Importantly, Helmerich & Payne entered into contracts to build and operate 3 additional technologically-advanced FlexRigs in the U.S. under multi-year term contracts with attractive dayrates and economic returns.

Helmerich & Payne currently retains a Zacks #2 Rank (short-term 'Buy' rating), a notch higher than its rig contractor peers Patterson-UTI Inc. (PTEN - Analyst Report) and Nabors Industries (NBR - Analyst Report). Longer term, we are maintaining our Neutral recommendation on the stock.

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