Oil-service companies' earnings lag. Boring into the bottom line - Houston Chronicle, July 14
By NELSON ANTOSH
Improved oil prices didn't come in time to save the oil-field service industry
from dismal second-quarter profits, which are shaping up to be worse than
expected.
Most financial analysts ratcheted down their estimates as the quarter unfolded.
These estimates will be confirmed during the next two weeks as companies
report their earnings.
It is fair to say that earnings are lower than analysts thought they would be
early in the quarter, said Corey Kilpack, an analyst who follows service
companies for Sanders Morris Mundy in Houston.
On the plus side, analysts think that the low point has been reached and a
slow recovery is in the works, but some companies will have to wait longer
than others.
"I think the third quarter will be somewhat flattish, with a potential increase in
the fourth in some cases," Kilpack said.
As a broad statement, earnings are bottoming out in the second quarter, said
Allen Brooks of CIBC World Markets in Houston. Every company is a little
different, he said, and some will be bumping along the bottom for a while.
"We believe before the end of the year, we will see some meaningful
improvement in activity," Brooks said in reference to service companies.
Land drilling will be the first to go up, along with well workovers and pressure
pumping, Kilpack predicts. Then, shallow-water drilling on the continental
shelf will be followed by drill bits, tools, equipment and services.
One of the laggards will be deepwater drilling, where day rates are still falling,
Brooks said. Transocean, a leading deepwater driller, said at a recent
conference that recovery could trail the improving oil market by 12 to 24
months.
Some of the companies that manufacture seismic equipment will have the
steepest climb. Input/Output, for instance, has cut its work force by more than
50 percent since August 1998.
The new budgets adopted by oil companies will by next spring produce
additional demand for jack-up rigs, which operate in the relatively shallow
waters of the shelf, Kilpack predicts.
But the manufacturing side of the service business will lag all other segments
because of the lead time involved, he said.
Cooper Cameron, for instance, just now is beginning to hint of a pickup in
business for the fourth quarter, according to Dain Rauscher Wessels.
"The oil service stocks have snapped back from their trough prices in
anticipation of improving fundamentals," said Simmons & Company
International in a report on Nabors Industries, the largest U.S. land driller.
Nabors' fiscal 2000 earnings estimate has been increased from 69 cents a
share to 87 cents.
"Although it is unclear as to exactly how much and how soon the fundamentals
improve, we believe that they improve faster than consensus expects. Our rig
forecast projects drilling activity in the United States to rise 23 percent per
year through 2001," Simmons said.
Since it bottomed on April 23 at only 488 rigs in operation, the rig count has
rebounded by 19 percent.
But companies have been operating under price pressure. For instance, Smith
International had to renegotiate at lower prices several drilling fluid, drill bit
and tubular jobs, according to Dain Rauscher analyst Jim Wicklund of Dallas.
That is part of the reason Smith International's second-quarter earnings
estimate was revised from a 10-cent-per-share profit to a 5-cent loss.
And Smith International's 1999 earnings-per-share estimate was cut last week
from 75 cents down to 33 cents, by Dain Rauscher.
Cooper Cameron, which manufactures equipment, was lowered from 27
cents per share to 23 cents, based mostly on weakness in its compressor
business.
But, said Wicklund, "Cooper is one of the few companies within our universe
expecting a sequential increase in revenues in the second quarter. We believe
the second quarter will mark the beginning of a trend in which revenues and
earnings per share will increase sequentially through the remaining two
quarters of the year."
Cooper Cameron's earnings are forecast to grow from 23 cents a share in the
second quarter, to 24 cents in the third and 27 cents in the fourth.
Seismic equipment maker Oyo Geospace of Stafford saw its projection for
the remainder of fiscal 1999 lowered to 11 cents per share, from 19 cents.
Makers of seismic equipment are feeling the fact that nearly half of the world's
seismic crews are idled, according to Wicklund. To save money, its
customers are cannibalizing the equipment used by idled crews, cutting into
the sales of equipment made by Oyo, such as geophones, cables and
recording boxes.
"This leads to the conclusion that the short-term outlook for Oyo is weak, but
we continue to support the company in these trying times because we believe
it has the ability to survive the current weak environment," Wicklund said in a
report. |
