Transocean Ltd. (RIG - Free Report) posted adjusted loss of 30 cents a share in the first quarter of 2019, a penny wider than the Zacks Consensus Estimate. Lower-than-anticipated revenues from Harsh Environment floaters along with increasing costs led to the underperformance. Precisely, revenues from harsh environment floaters came in at $258 million, lagging the consensus estimate of $289 million.
However, the bottom line improved from the year-ago period’s loss of 48 cents on robust contribution from Ultra-Deepwater floaters. The group contributed $476 million to Transocean’s revenues, ahead of the Zacks Consensus Estimate of $463 million. Higher dayrates and utilization helped too.
The offshore drilling powerhouse generated total revenues of $754 million, in line with the Zacks Consensus Estimate but increased 13.6% from the prior-year figure of $664 million.
Segmental Revenue Break-Up
Transocean’s High-Specification floaters contributed about 97% to total contract drilling revenues, while Deepwater and Midwater floaters accounted for the remainder. In the quarter under review, revenues from Ultra-Deepwater and Harsh Environment floaters totaled $476 million (above the Zacks Consensus Estimate of $463 million) and $258 million (lower than our estimate of $289 million), respectively.
Revenue efficiency in the quarter was 98%, reflecting an increase from both the fourth quarter and year-ago levels of 96% and 92%, respectively.
Dayrates and Utilization
On an encouraging note, average dayrate in the quarter under review rose to $306,500 from the year-ago level of $287,600, owing to the uptick in activity in the Asia Pacific and strength in harsh environment markets of Norway and Canada. Overall fleet utilization was 56% during the quarter, up from the utilization rate of 52% in the year-ago period.
Transocean’s strong backlog, which was recorded at $12.1 billion as of Apr 17, reflects steady demand from customers. While it declined $400 million from the year-ago period, it’s still the highest in the industry. During the first quarter, the company added more than $370 million to its backlog, chiefly attributable two new award from Brazilian energy major Petrobras (PBR - Free Report) .
Transocean’s operating and maintenance expenses rose 29.8% year over year to $508 million. Depreciation costs also increased to $217 million from $202 million in the year-ago quarter. With costs rising, the company reported negative cash flow from operating activities to the tune of $51 million.
Capital Expenditure & Balance Sheet
Transocean spent $52 million on capital expenditure in the first quarter of 2019. It had cash and cash equivalents of $1.9 billion as of Mar 31, 2019. Long-term debt of the company was $9.1 billion, with a debt-to-capitalization ratio of 41.2% as of the same date.
For the second quarter, the company guided toward operating and maintenance expenses of $545 million. Capital spending is likely to be around $123 million (including $70 million on under-construction newbuilds). Finally, Transocean sees revenue efficiency at 95% in the second quarter.
Zacks Rank & Key Picks
Transocean holds a Zacks Rank #3 (Hold).
Meanwhile, investors interested in the the energy space could look at some better options like ProPetro Holding Corp. (PUMP - Free Report) and TransCanada Corporation (TRP - Free Report) that sport a Zacks Rank #2 (Buy).
The 2019 Zacks Consensus Estimate for Midland, TX-based ProPetro is $2.53, representing some 26.5% earnings per share growth over 2018. Next year’s average forecast is $2.80 pointing to another 10.5% growth.
TransCanada has a 100% track of outperforming estimates over the last four quarters at an average rate of 14.8%.
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