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Helmerich & Payne (HP) Up 9% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Helmerich & Payne (HP - Free Report) . Shares have added about 9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Helmerich & Payne due for a pullback? 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 catalysts.

Third-Quarter Fiscal 2018 Results

Helmerich & Payne reported third-quarter fiscal 2018 adjusted operating loss of a penny, lagging the Zacks Consensus Estimate of a profit of 3 cents per share. However, the bottom line compared favorably with the year-ago adjusted loss of 18 cents.

Lower-than-expected average rig margin in the offshore segment resulted in weaker-than anticipated results. Average rig margin in the offshore segment came in at $4,686, lagging the Zacks Consensus Estimate of $10,360.

Revenues of $648.8 million topped the Zacks Consensus Estimate of $619 million. Further, the top line increased more than 42.5% from the year-ago figure of $498.5 million.The improved year-over-year results were primarily driven by higher drilling activity at its biggest segment, U.S. Land.

Segment Performance

U.S. Land: During the quarter, operating revenues totaled $536.6 million (82.7% of the total revenues), up 32.3% year over year. While average rig revenue per operating day was $23,698, — 7.8% higher than the year-ago period — average rig margin per day was up 13.4% to $8,764. Moreover, utilization levels of 63% in the quarter under review (versus 52% in third-quarter fiscal 2017) resulted in an operating income of 34.3 million at the segment, marking a turnaround from the year-ago loss of $7.9 million.

Offshore: Helmerich & Payne’s Offshore revenues came in at around $37.7 million compared with $33.7 million in the prior-year quarter. Daily average rig revenues fell 1% to $35,293 and average rig margin per day plunged 59.3% to $4,686. Owing to this, the segment’s operating income decreased 41.4% to $3.8 million. However, rig utilization was up from the year-ago level of 75-79%.

International Land: Helmerich & Payne’s International Land operations generated revenues of $63.3 million, up from $55.1 million in the prior-year quarter. Average daily rig revenues were $33,941, up 3.8% from the corresponding period last year and rig margin per day was $9,994, down from the year-ago figure of $13,063.

Additionally, average rig expense per day increased 21.9% year over year, while activity levels increased to 50% from 47% a year ago. The segment’s operating profit came in at $4.3 million compared with the year-ago quarter’s income of $4.9 million.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $332.6 million on capital programs. As of Jun 30, 2018, the company had approximately $306.4 million in cash, while long-term debt totaled $493.7 million (debt-to-capitalization ratio of 10%).

Guidance

The Tulsa, OK-based company expects activity in the U.S. land segment to rise 6% sequentially during the fourth quarter of fiscal 2018. While average rig revenue per day is likely to be around $24,000, daily average rig cost is expected to be roughly $14,700 during the said quarter.

As of the offshore segment, Helmerich & Payne expects average rig margin per day to be around $13,000 during fourth-quarter fiscal 2018 and revenue days to increase 4% sequentially.

The international land segment will likely increase 3% sequentially in revenue days during the quarter, while average rig margin per day is expected to be around $9,000.

For fiscal 2018, Helmerich & Payne projects a capital budget of $450 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Helmerich & Payne has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Helmerich & Payne has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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