dmc and thread: here is that full article from Mavis -
Oil-Service Firms Won't Be
Well Served by First-Quarter
Earnings
By Mavis Scanlon
Staff Reporter
4/7/99 3:19 PM ET
Oil prices are up, but don't expect oil-service earnings to
follow, at least in the short term.
Earnings season for the group picks up in earnest at
midmonth. And while there will be a few bright spots,
first-quarter earnings for the most part should be ugly.
Even at this late date, consensus estimates still are too
high in some cases, observers say. So many companies
will fall short of expectations if those targets aren't
ratcheted down over the next two weeks.
Slippery Slope
First-quarter earnings drop sharply in the oil patch
Company
1998
1999
(est.)
% Change
Schlumberger (SLB:NYSE)
67c
32c
-52%
Halliburton (HAL:NYSE)
46
21
-54
Baker Hughes (BHI:NYSE)
35
12
-66
Smith International
(SII:NYSE)
72
16
-78
BJ Services* (BJS:NYSE)
47
7
-85
Weatherford International
(WFT:NYSE)
63
9
-86
Transocean Offshore
(RIG:NYSE)
63
72
14
Santa Fe International
(SDC:NYSE)
59
49
-17
Diamond Offshore
(DO:NYSE)
56
38
-32
Global Marine
(GLM:NYSE)
39
20
-49
Ensco International
(ESV:NYSE)
61
4
-93
R&B Falcon (FLC:NYSE)
42
2
-95
Grey Wolf (GW:NYSE)
1
-7
n.a.
Helmerich & Payne*
(HP:NYSE)
38
22
-42
Nabors Industries
(NBR:NYSE)
36
15
-58
J. Ray McDermott**
(JRM:NYSE)
22
31
40
*Fiscal second quarter. ** Fiscal fourth quarter. Source: First Call.
If these disappointments occur, they'll come amid a
revival in these stocks. Beginning in early March,
investors piled into the sector on hopes, later realized,
of an OPEC-led production cut aimed at boosting oil
prices. The Philadelphia Stock Exchange oil service
index soared 50% by the end of March, to a high of
71.84 from 47.40 on March 1. The rally has since
tempered, with the index falling back to 61.43, but it's
still far above the earlier lows. So the question is, Will
poor quarterly earnings send investors fleeing?
Just Tuesday, Core Laboratories (CLB:NYSE), which
provides oil reservoir-monitoring services, said its
earnings for the year's first six months will fall
significantly below last year's. Quarter after quarter,
Core had beaten expectations; there was a perception
the company was impervious to the industry's
downturn. It turns out Core wasn't, hit by weak demand
for its services, and investors fled. Core plunged 29%
Tuesday to 12 9/16. It was trading at 13 3/16
Wednesday, up 5/8.
To be sure, Core is an extreme example. Analysts who
follow the company say Core as recently as two weeks
ago was confident that it would meet its numbers.
But other companies in the industry, and the analysts
following them, aren't confident they will meet
expectations for this quarter or even the next two. A few
examples:
Halliburton (SLB:NYSE): The consensus
estimate stands at 21 cents a share. Spokesman
Guy Marcus declined to comment specifically on
that number but said he expects industry
estimates to drop due to March's low drilling
activity levels.
Cooper Cameron (CAM:NYSE): The consensus
estimate is 30 cents, according to First Call.
Scott Amann, a Cooper spokesman, says he is
more comfortable with a figure in the mid-to-high
20-cent-a-share range.
Rowan (RDC:NYSE): Rowan spokesman Bill
Provine thinks the company will report a loss
worse than the consensus loss of 4 cents per
share.
Noble Drilling (NE:NYSE): Spokesman Steve
Manz says his challenge is talking down current
utilization and rental rate forecasts for the
second and third quarters.
"My sense is that most companies will miss earnings,"
says Mike Nery, a vice president at hedge fund Denver
Energy Advisors. But while he believes that will hurt
share prices, he doesn't think it'll be as bad as what
happened to Core.
Sell-siders, however, don't expect that investors will be
surprised. So what will they listen for on upcoming
conference calls to project future activity?
On a company-specific basis, Scott Gill, who follows the
group at Simmons in Houston, will tune in to how well
the cost-cutting measures of recent months are playing
out. He expects to see those efforts add to the bottom
line in the second and third quarters. On the bigger
picture, "I'll be looking for any signs that drilling activity
is going to be picking up," he says.
A good way to ascertain that is to listen in to the
conference calls of exploration-and-production
companies. What do spending plans for this year and
next look like? Is the company announcing any changes
from previously announced budgets? What are
managers saying about production levels in light of
recent budget cutbacks?
Jim Wicklund, who follows the group at Dain Rauscher
Wessels in Dallas, says the lag between a rise in oil
prices and a pickup in drilling activity, typically several
months, will be longer this year. As oil companies
merge, they evaluate drilling prospects and sell
unwanted assets. Industry observers expect billions of
dollars worth of property to come on the market this
year, so cash flow at small and midsize companies will
be used to snap up attractive properties, thereby
diminishing the cash spent on drilling.
What Wicklund wants to see is a public declaration by
companies that they "see the light at the end of the
tunnel," he says. "I don't think most companies will be
able to do that."
Case in point is Diamond Offshore (DO:NYSE), where
Gary Krenek, Diamond's chief financial officer, says
there has been absolutely no effect on the drilling
industry yet from the rise in oil prices.
"We have not really been guiding anyone," Krenek
says. In a testament to investors' concerns, he notes
that few investors or analysts are uncomfortable with
that. "Where those earnings are going to be really
depends on the price of oil," he says.
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