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Nabors (NBR) Down 0.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Nabors Industries (NBR - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nabors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Second-Quarter 2018 Results

Nabors reported second-quarter 2018 adjusted loss from continuing operations of 39 cents per share, wider than the Zacks Consensus Estimate of 21 cents due to increased expenses. However, the reported loss was narrower than the year-ago adjusted loss of 46 cents per share due to strong performance from the U.S. Drilling segment.

Quarterly revenues of $758.8 million marginally missed the Zacks Consensus Estimate of $760 million due to lower sales from the International Drilling segment. However, the top line was 20.5% higher than the year-ago level of $630 million, which can be attributed to higher rig activities in most of the segments.

Notably, during the second quarter, the company received awards for 13 incremental rigs, all over the world, amid rising demand for high-specification rigs.

Segments

Nabors’ U.S. Drilling segment generated quarterly operating revenues of $264.4 million, up 41.1% from the year-ago level. This was mainly driven by an increase in dayrates and margins in Lower 48. Though U.S. operations incurred an operating loss of $13.1 million, it improved from a loss of $56.1 million in the prior-year period. The startup of the MODSTM 400 deepwater platform rig in the Gulf of Mexico at the beginning of the quarter positively impacted the segment’s results.

Canadian Drilling segment witnessed a marginal upside (1.9% year-over-year) in revenues to stand at $17.4 million in the quarter under review. Moreover, the segment’s quarterly loss of $4.6 million was narrower than the operating loss of $5 million in the year-ago quarter on the back of the company’s shift toward higher-spec rigs, partially offset by lower rig count.

International Drilling segment’s operations attributed to revenues of $378 million, which decreased from the year-ago quarter’s $380.3 million. Further, operating income fell to $24.5 million in the quarter under review from the year-ago quarter’s figure of $36.2 million due to lower rig counts, partially triggered by the sale of jack-ups. The company expects the segment’s third-quarter results to be affected by the Saudi jackup sale.

Revenues at the Drilling Solutions segment increased to $59.9 million in second-quarter 2018 compared with $31.8 million recorded in the year-ago quarter. As such, the unit recorded an improvement from the operating income of $3.8 million in the year-ago quarter to $7.5 million in the quarter under review. This can be attributed to higher activities across most of the segments’ product lines and greater contribution from certain services of Tesco.

Revenues at the Rig Technologies segment increased to $81.3 million compared with the prior-year quarter’s level of $61.2 million, primarily due to increased aftermarket sales. Moreover, the segment’s loss narrowed to $3.4 million from the prior-year quarter’s $5 million. The segment’s results were impacted by delayed completion and shipping of capital equipment, which took place in the second quarter.

Expenses

Total costs and expenses increased from $765.4 million in the year-ago quarter to $930.7 million, on the back of increased direct costs in the reported quarter.

Balance Sheet

As of Jun 30, 2018, the company had $636.5 million in cash and short-term investments, and $3,818.6 million in long-term debt, with a debt-to-capitalization ratio of approximately 55.3%. The company reduced its debt burden through the quarter, with equity issuance and divestment of three Saudi Arabia jackups.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -26.14% due to these changes.

VGM Scores

Currently, Nabors has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Nabors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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