Helmerich & Payne Beats Overall

Contract drilling services provider Helmerich & Payne Inc. ( HP - Analyst Report ) reported sterling results for the third quarter of fiscal 2012 (three months ended June 30, 2012), reflecting strong contributions from the domestic and international land operations.

Earnings per share from continuing operations (excluding special items) came in at $1.37, beating the Zacks Consensus Estimate of $1.15. Compared with the year-ago adjusted profit, the result increased 38.4% from 99 cents.

Revenues of $819.8 million were up 27.3% from third quarter 2011 and also surpassed our projection of $782.0 million.

Segment Performance

U.S. Land Operations: During the quarter, operating revenues totaled $706.8 million (86% of total revenue), up 31.0% year over year. Average rig revenue per operating day was $28,096, up 8.2%, while average rig margin per day increased 11.6% to $14,759.

Utilization levels rose to 89% (from 87% in the third quarter of fiscal 2011). As a result, segment operating income improved significantly (by 27.8%) from the year-earlier quarter to $235.7 million.

Offshore Operations: Helmerich & Payne’s offshore revenues were down 23.8% year over year to $41.6 million. Daily average rig revenue decreased 9.0% to $49,539, while average rig margin per day plunged 34.5% to $16,901. This pulled down the segment’s operating income 40.3% from the prior-year quarter to $7.7 million. Quarterly rig utilization was 74%, down from 78% recorded a year ago.

International Land Operations: International land operations recorded revenues of $67.5 million, up from $46.1 million in the previous-year quarter. Average daily rig revenue was $33,362, up 14.2%, while rig margin per day was $7,704, against $5,353 in the year-ago period. With better activity, the segment generated operating profit of $6.3 million, compared with a loss of $624,000 in the third quarter of fiscal 2011. Utilization level was 77%, up from 65% in the corresponding period, last year.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $281.5 million on capital programs. As of June 30, 2012, the company had approximately $148.9 million in cash, while long-term debt stood at $235.0 million (debt-to-capitalization ratio of 6.1%).

The company bought back about 1.75 million shares at an average price of $44.40 per share.

Outlook & Recommendation

We remain apprehensive that the deteriorating oil price scenario will likely impact the demand for drilling equipments and services, affecting the company’s profitability in the coming days.

Barbados-based Nabors Industries Ltd. ( NBR - Analyst Report ) – leading land-drilling contractor in the world – reported weaker-than-expected second quarter 2012 results, with earnings per share and revenue missing our projection.

Helmerich & Payne currently retains a Zacks #4 Rank (short-term Sell rating). Longer term, we are maintaining our Underperform recommendation on the stock.