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Weatherford's Taxes Weigh on 4Q EPS

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Leading oilfield services’ company Weatherford International Ltd.’s (WFT - Free Report) fourth quarter 2012 adjusted earnings of 1 cent per share came in way below the Zacks Consensus Estimate of 18 cents. The results also dropped substantially from the year-earlier adjusted earnings of 13 cents. The earnings declined mainly due to the weakness in North American earnings.

For full-year 2012, the company’s profit of 58 cents per share lagged the Zacks Consensus Estimate of 68 cents. However, the reported figure was above the year-earlier earnings of 45 cents per share.

Total revenue, in the fourth quarter, increased more than 9% year over year to $4,058.0 million, and surpassed the Zacks Consensus Estimate of $3,903 million. Full-year 2012 total revenue increased more than 17% year over year to $15,215 million.

Operational Performance

North American revenues decreased 1.1% year over year to $1,682.0 million. The continued decline in the US land rig count as well as oversupply of hydraulic fracturing capacity contributed to the loss. The Stimulation and Chemicals segment was also weak, with operating income of $226.0 million compared with $381.0 million in the year-ago quarter.

Middle East/North Africa/Asia revenues climbed 26.1% year over year to $851 million. The increase was mainly broad-based and additional activity in Saudi Arabia, Kuwait and Oman contributed to the growth. The segment’s operating income jumped 70.6% year over year to $58 million.

Europe/West Africa/FSU posted revenues of $669.0 million, up 9.9% year over year. The segment’s operating income dropped 26.3% year over year to $59.0 million. Strong performance in Russia, Romania and Norway aided the revenue growth.

Latin American revenues climbed 17.9% year over year to $856.0 million, buoyed by Russia, Romania and Norway. Operating income from this segment expanded significantly to $125.0 million from the year-ago level of $114.0 million.


As of Dec 31, 2012, Weatherford had $300 million in cash and cash equivalents and long-term debt was $7,049 million. Weatherford spent approximately $2.25 billion in capital expenditures during 2012.


With respect to 2013, the company maintained a neutral outlook for its North American business and expects moderate growth in revenue and operating income.

Weatherford foresees sustained growth and expanding margins in its Latin America region, supported by improvements in Argentina and Mexico.

The company also expects improvements in the Eastern Hemisphere in 2013, with upside in Europe, Sub-Saharan Africa and Russia, as well as stronger activity levels in the Middle East, North Africa and Asia Pacific.

The annual effective tax rate in 2013 is expected to be about 34%.

Our Recommendation

We remain optimistic on Weatherford’s operational and financial leverage to international growth in 2013. But the company’s debt-heavy balance sheet, weak free cash flow as well as competition from larger peers such as Schlumberger Limited (SLB - Free Report) are causes of concern.

Weatherford holds a Zacks Rank #3 (Hold). However, there are other stocks in the oil and gas sector – NGL Energy Partners LP (NGL - Free Report) and Laclede Group Inc – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.

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