Yahoo Finance Why Is Transocean (RIG) Up 17.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Transocean (RIG). Shares have added about 17.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Transocean due for a pullback? 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.
Transocean Q1 Loss Narrower Than Expected, Revenues Miss
Transocean reported an adjusted net loss of 3 cents per share in the first quarter of 2024. The figure was narrower than the Zacks Consensus Estimate of a loss of 13 cents per share. RIG’s bottom line also improved from the year-ago period’s reported loss of 38 cents per share. This improvement can be attributed to strong first-quarter performance of RIG's Ultra-deepwater floaters segment.
The offshore drilling powerhouse’s total adjusted revenues of $767 million missed the Zacks Consensus Estimate of $779 million. However, the top line improved 18.2% from the prior-year reported figure of $649 million. This outperformance was primarily due to increased activity for rigs, higher day rates and increased reimbursable revenues.
Segmental Revenue Breakup
Transocean’s Ultra-deepwater floaters contributed 74.6% to net contract drilling revenues, while Harsh Environment floaters accounted for the remaining 25.4%.
Revenues from the Ultra-deepwater and Harsh Environment floaters totaled $569 million and $194 million, respectively, compared with the year-ago quarter’s reported figures of $484 million and $165 million.
Ultra-deepwater and Harsh Environment revenues fell short of our projection of $571.5 million and $208.1 million, respectively.
Revenue efficiency dropped to 92.9% from 97% in the year-ago quarter.
Day rates, Utilization & Backlog
Average day rates in the reported quarter increased to $408,200 from $364,100 in the year-ago period. The figure missed our estimate of $431,300.
Average revenues per day from Ultra-deepwater floaters increased to $422,900 from $360,000 in the year-ago quarter. The same from Harsh Environment floaters, however, decreased to $367,900 from $376,000 in the comparable period of 2023.
The fleet utilization rate was 53.7%, up from the prior-year period’s figure of 51.9%.
Transocean’s backlog of $8.9 billion decreased sequentially from $9.01 billion.
Costs, Capex & Balance Sheet
Operations and maintenance (O&M) costs increased to $523 million from $409 million reported a year ago. The company spent $83 million on capital investments in the first quarter. Cash used in operating activities totaled $86 million.
Cash and cash equivalents amounted to $446 million as of Mar 31, 2024. Long-term debt totaled $6.8 billion, with a debt-to-capitalization of 39.3% as of the same date.
Guidance
RIG projects O&M expenses of approximately $570 million for the second quarter. This quarter-over-quarter increase is primarily driven by increased activities associated with the four rigs, as well as an increase in in-source maintenance costs.
General and administrative costs are estimated to be $60 million. This sequential increase is primarily due to transaction fees or debt financing, debt refinancing, and an earlier retirement program offered to long-term employees.
The company expects a net interest expense of $138 million for the second quarter. This includes an estimated $8 million in capitalized interest.
Projected capital expenditures for the second quarter are $92 million, with about $55 million allocated for the preparation of Deepwater Aquila for its 3-year contract with Petrobras in Brazil. Cash taxes are expected to total $17 million.
The company expects adjusted revenues to be at the lower end of the range, around $3.6 billion. This includes approximately $215 million in additional services and reimbursement expenses.
The company anticipates annual O&M expenses of $2.2-$2.3 billion. The company anticipates G&A costs of $210 million.
Transocean's projected year-end 2024 liquidity is $1.4 billion. This includes the $575 million capacity of its newly amended, extended and undrawn revolving facility. It also includes approximately $395 million of restricted cash, most of which is reserved for specific services.
For 2024, Transocean anticipates capital expenditures (CapEx) of $231 million. This breakdown includes $134 million specifically allocated to the Deepwater Aquila and $97 million for ongoing maintenance and contract preparation.
Cash taxes are expected at about $15 million for the same quarter and roughly $35 million for full-year 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -461.91% due to these changes.
VGM Scores
Currently, Transocean has a poor Growth Score of F, a grade with the same score on the momentum front. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Transocean has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Transocean is part of the Zacks Oil and Gas - Drilling industry. Over the past month, Nabors Industries (NBR), a stock from the same industry, has gained 6.2%. The company reported its results for the quarter ended March 2024 more than a month ago.
Nabors reported revenues of $743.91 million in the last reported quarter, representing a year-over-year change of -5.7%. EPS of -$5.16 for the same period compares with -$0.55 a year ago.
Nabors is expected to post a loss of $1.81 per share for the current quarter, representing a year-over-year change of +19.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -4%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Nabors. Also, the stock has a VGM Score of A.
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