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Helmerich & Payne (HP) Q2 Earnings Top on U.S. Land Strength

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Helmerich & Payne Inc. (HP - Free Report) recently released fiscal second-quarter 2019 results, wherein it delivered a comprehensive beat on the back of better-than-expected operating results from the U.S. Land business – the company’s largest segment. Investors should note that the unit represents 90% of its total fleet and makes up more than 85% of the contract drilling service provider’s revenues.

The company posted adjusted quarterly earnings of 66 cents a share, comfortably surpassing the Zacks Consensus Estimate of 38 cents and turning around from the year-ago adjusted loss of 5 cents.

Operating revenues of $720.9 million outpaced the Zacks Consensus Estimate of $714 million and surged around 25% from the year-ago level.

Helmerich & Payne, Inc. Price, Consensus and EPS Surprise

 

Helmerich & Payne, Inc. Price, Consensus and EPS Surprise | Helmerich & Payne, Inc. Quote

Segmental Performance

U.S. Land: During the quarter, operating revenues totaled $622.2 million, up 28.9% year over year as revenue days increased 13.9% and average rig revenue per day rose 12%. The Zacks Consensus Estimate for operating revenues at the company’s dominant unit in fiscal second quarter of 2019 was $606 million.

The average rig margin per day also increased 29.9% to $11,486. Moreover, utilization levels of 67% in the quarter under review (versus 59% in second-quarter fiscal 2018) resulted in an operating income of $106.1 million at the segment, reflecting a massive jump from the year-ago profit of $27.1 million and ahead of the Zacks Consensus Estimate of $89 million.

Offshore: Helmerich & Payne’s Offshore revenues came in at around $34.6 million compared with $33 million in the prior-year quarter primarily due to increase in the number of revenue days.

Notably, rig utilization was 75%, up from the year-ago level of 63%. However, daily average rig revenues came in lower than the year-ago figure, while rig expense per day rose 7.7%. Consequently, the average rig margin per day moved down 43% year over year and segmental profits decreased to $4.5 million from $5.4 million in the prior-year quarter.

International Land: Helmerich & Payne’s International Land operations generated revenues of $50.8 million, down slightly from $52.5 million in the prior-year quarter on lower average rig revenue per day.

Meanwhile, rig utilization rose to 54% from 45% a year ago. Average rig expense per day reduced 20.6% from the year-ago quarter. Further, rig margin per day was $11,861, higher than the year-ago figure of $8,533 and daily rig expenses fell more than 20%. As a result, the segment’s operating earnings totaled $8 million, turning around from the year-ago quarter’s loss of $695,000.

H&P Technologies: In late November 2018, Helmerich & Payne announced the creation of its new segment ‘H&P Technologies’ to reflect the recently acquired rig technology companies –MagVar and Motive Drilling – along with Angus Jamieson Consulting, which is an industry leader in wellbore positioning.

The segment witnessed strong demand during the quarter, leading to revenues of $10.1 million, up 61% from the year-ago figure. Higher revenues were partly offset by increasing operating expenses and depreciation. Overall, segmental loss of $7.9 million was slightly narrower than the year-ago loss of $8.5 million.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent $133.9 million on capital programs. As of Mar 31, 2019, the company had $243.9 million in cash and cash equivalents, while long-term debt stood at $491.2 million (debt-to-capitalization ratio of 10.2%).

Guidance

The Tulsa, OK-based company expects activity in the U.S. land segment to decrease 5-7% sequentially during the third quarter of fiscal 2019. While average rig revenues per day are likely to be in the band of $25,500-$26,000, daily average rig cost is expected within $14,250-$14,750 during the said quarter.

Coming to the offshore segment, Helmerich & Payne expects average rig margin per day within $9,500-$10,500 in third-quarter fiscal 2019 and revenue days to edge up 1% sequentially.

However, international land segment revenue days will likely decrease 1% sequentially. Average rig margin per day is expected within $9,000-$10,000.

For fiscal 2019, Helmerich & Payne still expects its capital outlay in the band of $500-$530 million.

Zacks Rank and Key Picks

Currently, Helmerich & Payne carries a Zacks Rank #2 (Buy).

Apart from Helmerich & Payne, one can also look at some other players in the energy space like ProPetro Holding Corp. (PUMP - Free Report) , Parsley Energy (PE - Free Report) and TransCanada Corporation (TRP - Free Report) that also sport a Zacks Rank #2.

The 2019 Zacks Consensus Estimate for Midland, TX-based ProPetro is $2.42, representing some 21% earnings per share growth over 2018. Next year’s average forecast is $2.70 pointing to another 11.5% growth.

TransCanada has a 100% track of outperforming estimates over the last four quarters at an average rate of 19%.

The 2019 Zacks Consensus Estimate for Austin, TX-based Parsley is $1,53, representing some 8.5% earnings per share growth over 2018. Next year’s average forecast is $2.47 pointing to another 61.8% growth.

(You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.)

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