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Why Is Nabors (NBR) Down 28.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Nabors Industries (NBR - Free Report) . Shares have lost about 28.8% 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 catalysts.

Nabors’ Q3 Earnings Miss, Rise Y/Y on U.S. Drilling

Nabors Industriesreported third-quarter 2018 adjusted loss from continuing operations of 31 cents per share, wider than the Zacks Consensus Estimate of 19 cents due to lower international margins and increased expenses. However, the reported figure was narrower than the year-ago adjusted loss of 42 cents per share due to strong performance from its U.S. Drilling segment.

Quarterly revenues of $778.1 million missed the Zacks Consensus Estimate of $800 million on weak international segment sales. However, the top line was higher than the year-ago level of $662.5 million, which can be attributed to higher total average rigs working. During the third quarter, the company ran an average of 225.5 rigs all over the world compared with 212 in the year-ago quarter.  

Segments

Nabors’ U.S. Drilling segment generated quarterly operating revenues of $274 million, up from the year-ago level of $222.7 million. The segment recorded operating income of $2.6 million, reflecting significant improvement from a loss of $53.5 million in the prior-year period. This was mainly driven by an improvement in drilling performance in the Lower 48, accompanied by higher day rates and falling expenses.

Canadian Drilling segment revenues came in at $26.6 million in the quarter under review, recording an uptick from year-ago figure of $18.1 million. Moreover, the segment’s quarterly loss of $1.9 million was narrower than the operating loss of $7.5 million in the year-ago quarter.

International Drilling segment’s operations attributed to revenues of $377.1 million, which increased from the year-ago quarter’s $374.1 million. However, operating income fell to $25.7 million in the quarter under review from the year-ago figure of $32.3 million due to the sale of jack-ups, coupled with higher operational and reactivation costs that led to lower average margin per day.

Revenues at the Drilling Solutions segment increased to $60.9 million in third-quarter 2018 from $37.5 million recorded in the year-ago quarter. As such, the unit’s operating income of $5.9 million in the year-ago quarter improved to $9.5 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 $63.6 million from the prior-year level of $50 million. Moreover, the segment’s loss narrowed to $4.1 million from the prior-year quarter’s $10.5 million. The segment’s results were impacted by the synergies from the Tesco acquisition.

Expenses

Total costs and expenses increased from $796.5 million in the year-ago quarter to $861.3 million on the back of increased direct costs in the reported quarter.

The company used $120 million for capital expenditure in the quarter under review.

Balance Sheet & Credit Facility

As of Sep 30, 2018, the company had $688.6 million in cash and short-term investments, and $3,737.3 million in long-term debt, with a debt-to-capitalization ratio of approximately 55.8%.

Notably, following the end of the quarter, along with amendment of its existing revolving credit facility, the company secured a new $1.3-billion revolving credit facility for five years.

Guidance and Outlook

Nabors expects its Drilling Solutions segment to significantly contribute to fourth-quarter results. The Rig Technologies segment will also likely witness tremendous growth. The company foresees the Drilling Solutions segment to generate adjusted EBITDA of more than $20 million through the fourth quarter. Moreover, capital expenditure for the full year of 2018 is expected at around $500 million and the same for the fourth quarter is projected to be $170 million.

The company received four rig-awards in the Lower 48 and nine awards in the international market. The rigs to be deployed in the United States are expected to be concluded by 2018. The company is also supposed to provide four M750 upgrades, which will be deployed within the first two quarters of 2019. Moreover, its joint venture with Saudi Aramco contracted 25 existing rigs at increased rates for four years, which came into effect on Sep 1. Of the total contracted rig amount, 20 will come from Nabors, while the joint venture will contribute the rest.

Nabors’ high-performance rigs are expected to experience higher demand from the international market. The company also foresees rising demand for its upgraded rigs in the Lower 48 region.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -5.63% due to these changes.

VGM Scores

Currently, Nabors has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

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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