A month has gone by since the last earnings report for Transocean Ltd. RIG . Shares have lost about 1.8% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is RIG 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.
First-Quarter 2018 Results
Transocean reported wider-than-expected loss per share in the first quarter of 2018. Notably the company, which had not missed earnings estimates since 2013, recently reported an adjusted loss of 48 cents per share in the quarter under review, wider than the Zacks Consensus Estimate of a loss of 36 cents.
Increased operational costs due to the acquisition of Songa Offshore adversely impacted the results.
The bottom line further deteriorated from earnings of a penny in the year-ago quarter. The loss also widened from 24 cents per share incurred in the last reported quarter.
Revenues of $664 million topped the Zacks Consensus Estimate of $657 million on higher fleet utilization. The top line also increased 5.6% sequentially. However, revenues witnessed a year-over-year decline of 10%. The year-over-year decrease is attributed to lower contract drilling revenues from the Ultra-Deepwater floaters.
Transocean's High-Specification floaters contributed about 87.6% to the total contract drilling revenues, while Deepwater floaters, Midwater floaters, High-Specification Jackups accounted for the remainder.
Revenue efficiency in the quarter reduced to 91.5%, compared with 97.8% and 92.4% in the year-ago quarter and the prior quarter, respectively.
Transocean's operating and maintenance expenses rose 22.2% to $424 million year over year. Costs also increased from the prior-quarter figure of $389 million. The general and administrative expenses moved up 20.5% from the year-ago figure to a total of $47 million.
The year-over year decline in revenues and operational inefficiency resulted in the company's cash flow from operating activities to plunge 43.1% from the first quarter of 2017. In the first quarter of 2018, cash flow from operating activities stood at $103 million compared with $181 million and $244 million recorded in the first quarter of 2017 and fourth-quarter 2017, respectively.
Dayrates and Utilization
Compared with the first quarter of 2017, dayrates fell almost 17.4% (from $337,700 to $287,600), unfavorably impacted by huge decline in the Ultra-Deepwater floaters' average daily revenues.
However, overall fleet utilization was 52% during the quarter, up from the year-ago utilization rate of 43% but nominally below 53% recorded in the prior quarter.
During the quarter, the company closed the acquisition of Norwegian contractor, Songa Offshore, which has boosted the backlog of Transocean by $3.7 billion and enhanced its long-term opportunities in the Norwegian markets. Transocean's strong backlog, which stands at $12.5 billion as of Apr 2018, reflects steady demand from its customers.
Capital Expenditure & Balance Sheet
Transocean spent $53 million on capital expenditures in the first quarter of 2018. As of Mar 31, 2018, Transocean had cash and cash equivalents of $2,712 million. Long-term debt of the company was $7,976 million, with a debt-to-capitalization ratio of 37.3%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower. Last month, the consensus estimate has shifted downward by 44% due to these changes.
Transocean Ltd. Price and Consensus
Transocean Ltd. Price and Consensus | Transocean Ltd. Quote
At this time, RIG has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
The company's stock is suitable solely for momentum based on our styles scores.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, RIG has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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