Earnings Preview: Nabors

Global land drilling contractor Nabors Industries Ltd. (NBR - Analyst Report) is expected to report its second quarter 2012 earnings on Tuesday, July 24, after the market closes.

The Zacks Consensus Estimate for the second quarter is a profit of 39 cents per share, on revenue of $1,730 million.

Preceding Quarter Recap

Nabors reported bright first quarter 2012 results, backed by strong contributions from most of the business units and lower interest expense.

Earnings per share from continuous operations (excluding special items) came in at 65 cents, surpassing the Zacks Consensus Estimate of 51 cents. Comparing year over year, results shot up 124.1% from 29 cents (adjusted) earned in the year-ago quarter.

Revenues of $1,842.0 million were above first quarter 2011 sales of $1,402.1 million, aided by strong activities across all business units. The result was also 2.1% above the Zacks Consensus Estimate.

As of March 31, 2012, the company had $493.9 million in cash and short-term investments and $4,773.3 million in long-term debt (inclusive of current portion), with a debt-to-capitalization ratio of approximately 45.0%.

Agreement of Analysts

The analysts exhibit a pessimistic sentiment on Nabors’ to-be-reported quarter based on the company’s expectation of a poor performing Pressure Pumping segment and low contributions from the International markets. These factors are expected to drag down the operating income and earnings level of the second quarter.

Out of the 19 analysts covering the stock, 16 have lowered their estimates in the last 30 days, while 11 have decreased the same in the last one week. However, none of the analysts have revised any estimate upward over the past one month.

Magnitude of Estimate Revisions

With effect from the earnings revisions by the analysts in the last 30 days, the Zacks Consensus Estimate for the quarter dropped to 39 cents from 46 cents. Seven days ago, the estimate for the second quarter was 43 cents.

Surprise History

Nabors exhibited a mixed earnings surprise trend over the last four quarters. The company recorded a minimum surprise of negative 8.00% in second quarter 2011 while a maximum of 10.00% in third quarter 2011. On average, the earnings surprise was 0.52%.

Our Recommendation

Barbados-based Nabors, which conducts oil, gas and geothermal land drilling operations and is a leading land-drilling contractor worldwide, currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

Nabors has businesses all over the globe and derives a significant portion of its income from international markets. These operations are susceptible to various risks such as war, civil disturbances and government actions. Any disturbance in the international markets will likely impact the company’s performance level.

Moreover, the company remains vulnerable to volatile natural gas prices, imbalance in the demand-supply of rigs in the U.S. land drilling market and a weak balance sheet.

Canadian energy firm Suncor Energy Inc. (SU - Analyst Report) and Philadelphia, Pennsylvania based FMC Corp. (FMC - Snapshot Report) are also slated to release their second quarter results tomorrow.