Leading oilfield services company
Weatherford International Ltd.
) reported preliminary third quarter 2012 adjusted pre-tax
earnings of $264.0 million, down from $288.0 million a year
before. The decline takes into account charges for the reduced
value of inventory and for professional fees related to tax
remediation efforts. The Switzerland-based firm has been unable
to report net income for the period due to unresolved accounting
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Over the last five years, Weatherford is subject to incremental
expenses owing to the ongoing process. The company is expected to
file its second quarter accounts with U.S. securities regulators
by the end of this month.
Though the total revenue in the quarter increased 13.3% year over
year to $3,818.0 million it missed the Zacks Consensus Estimate
of $3,944.0 million.
North American revenue climbed 6.5% year over year to $1,725.0
million. Sequentially, it increased 3.7%. The improvement was
driven by the higher level of operating activity in Canada for
seasonal recovery even with a lower number of rigs compared to
last year. However, lower U.S. land rig count, continued
oversupply of hydraulic fracturing capacity and the adverse
effects of Hurricane Isaac partly impacted the results.
The segment posted an operating income of $297.0 million compared
with $352.0 million in the year-ago quarter.
Middle East/North Africa/Asia revenue increased 22% year over
year and 7.7% sequentially to $699.0 million. The growth was
broad-based and came from increased operations in Iraq, Saudi
Arabia, Australia and Oman. The segment's operating income jumped
to $33.0 million from the year-ago level of $17.0 million.
Europe/SSA/FSU posted revenue of $626.0 million, up nearly 7%
year over year but down 4.1% sequentially. The segment's
operating income increased 16.0% year over year and decreased
15.3% sequentially to $94.0 million. The annualized strong
performance was primarily backed by robust activities in Romania,
Kazakhstan, Kenya and Congo. However, lower activities in Russia,
Tanzania, the UK, and Caspian partly offset the growth.
Latin American revenue surged 29.7% year over year but decreased
nearly 2% from the preceding quarter to $768.0 million. Operating
income expanded to $97.0 million from the year-ago level of $70.0
million and from the preceding quarter of $91.0 million.
As of September 30, 2012, Weatherford had $366.0 million in cash
and cash equivalents while long-term debt was $7,300.0 million.
Weatherford spent approximately $572.0 million in capital
expenditures during the third quarter of 2012.
The company expects fourth quarter 2012 earnings per share of 20
cents. However, the Zacks Consensus Estimate was 28 cents for the
The company maintained a positive but careful outlook for its
North American business for 2013.
Weatherford foresees sustained growth and expanding margins in
Latin America, underpinned by improvements in Argentina,
Colombia, Mexico and Venezuela.
The company also expects improvements in the Eastern Hemisphere
for the next year, with increases in Europe, Sub-Saharan Africa
and Russia. Weatherford also expects continued recovery in the
Middle East/North Africa/Asia Pacific region.
We maintain our long-term recommendation on Weatherford
International Ltd. at Underperform following the delay in
reporting income taxes due to a material weakness in internal
We expect investor sentiment toward the company to remain
lukewarm, considering Weatherford's recent accounting hiccups,
which has forced the company to defer its income tax reporting.
The company's strategy of rapid penetration into new
international markets will take some time to translate into
The company's competition from much larger peers such as
Baker Hughes Inc.
) are also a cause of concern.
Weatherford retains a Zacks #5 Rank, which translates into a
Strong Sell rating for a period of one to three months.