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Leading oilfield services’ company  Weatherford International Ltd.’s (WFT - Analyst Report) fourth quarter 2011 adjusted earnings of 2 cents per share came in way below the Zacks Consensus Estimate of 32 cents. The results also dropped substantially from the year-earlier loss of 16 cents.

For full-year 2011, the company’s profit of 34 cents per share lagged the Zacks Consensus Estimate of 84 cents. However, the reported figure was above the year-earlier loss of 20 cents per share.

Total revenue increased more than 26% year over year to $3,709.0 million, surpassing the Zacks Consensus Estimate of $3,601 million. Full-year 2011 total revenue increased by more than 27% year over year to $12,990 million but failed to meet our expectation of $12,881 million.

The company has restated its prior results as a result of inadequate internal controls related to taxes.

Operational Performance

North American revenue climbed 34.4% year over year to $1,698.4 million. Artificial Lift, Stimulation and Chemicals as well as Drilling Services made strong contributions. Robust activity in the U.S. was the primary growth driver. The segment posted an operating income of $381.8 million compared with $262.9 million in the year-ago quarter.

Middle East/North Africa/Asia revenue decreased 1.4% year over year to $675.2 million. The decline was mainly the result of the political turbulence in Libya, Algeria, and Egypt, including deconsolidation of three joint ventures and a slowdown in Algerian activity. The segment’s operating income plummeted nearly 11% year over year to $43.7 million.

Europe/West Africa/FSU posted revenue of $608.6 million, up 15.2% year over year. The segment’s operating income shot up 26.6% year over year to $81.5 million. Strong performance in Russia, Kazakhstan and Nigeria aided the revenue growth.

Latin American revenue climbed 63.1% year over year to $727.5 million, buoyed by Mexico, Venezuela and Columbia. Operating income from this segment expanded significantly to $112.2 million from the year-ago level of $52.2 million.

Liquidity

As of December 31, 2011, Weatherford had $371 million in cash and cash equivalents and long-term debt was $6,286.3 million, representing a debt-to-capitalization ratio of 39.7%. Weatherford spent approximately $1.5 billion in capital expenditures during 2011 and expects to spend between 10% and 15% of its revenues this year.

Guidance

The company expects its first quarter 2012 adjusted earnings per share to be approximately 30 cents. With respect to 2012, the company maintained a positive outlook for its North American business. The company believes that the depressed natural gas environment will likely be overshadowed by the predominance of oil activity in Canada and the U.S.

Weatherford foresees sustained growth and expanding margins in its Latin America region, underpinned by improvements in Argentina, Brazil, Colombia, Mexico and Venezuela.  

The company also expects improvements in the Eastern Hemisphere in 2012, with upside in Europe and Russia, as well as stronger activity levels in Iraq, Kuwait and Saudi Arabia, Australia and China.

Our Recommendation

Although we remain optimistic on Weatherford’s operational and financial leverage to international growth in 2012, the company’s debt-heavy balance sheet, its weak capability to generate free cash flow as well as competition from larger peers such as Schlumberger Limited (SLB - Analyst Report) are causes of concern.

Weatherford holds a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months. Consequently, our long-term Neutral recommendation remains unchanged at this stage.

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