Nabors' (NBR) Q2 Loss Narrower Than Expected, Sales Miss

Nabors Industries Ltd.’s NBR second-quarter 2020 loss from continuing operations (excluding special items) of $14.45 per share is narrower than the Zacks Consensus Estimate of a loss of $26.40 as well as the year-ago loss of $20.50. This outperformance can be attributed to a strong contribution from the Rig Technologies segment.

However, quarterly revenues of $535.97 million missed the Zacks Consensus Estimate $541 million and also declined from the year-ago level of $809 million, primarily due to weak performance at the U.S. drilling and Drilling Solutions segments.

Notably, year over year, Nabors’ adjusted EBITDA fell from $198.4 million to $153.8 million.

Segmental Performance

U.S. Drilling generated quarterly operating revenues of $173.8 million, down 46.3% from the year-ago level of $323.4 million. The segment recorded an operating loss of $23.4 million against the year-ago income of $20.4 million due to a drop in the rig count at Lower 48.

Canadian Drilling’s revenues of $3.56 million in the quarter under review tumbled from the year-ago figure of $11.4 million. Moreover, the segment’s operating loss came in at $5.8 million, wider than the year-ago quarter’s loss of $5.5 million due to weak activity across several markets and coronavirus-induced market distortions. 

International Drilling’s operational revenues of $301.1 million decreased from the year-ago quarter’s sales of $326.9 million. However, the segmental operating income came in at $276 thousand in the reported quarter against the prior-year loss of $6.9 million.

Revenues from the Drilling Solutions were 48.7% down to $33.1 million in the second quarter from $64.6 million a year ago and the same further missed the Zacks Consensus Estimate of $36.1 million. Moreover, the unit’s operating income of $1.73 million slumped from $13.8 million due to diminished activity across service lines and an increased price competition.

Revenues from the Rig Technologies segment plunged 53.8% to $33.6 million from the prior-year level of $72.75 million. However, the metric surpassed the Zacks Consensus Estimate of $29.5 million. Moreover, the segment’s operating income marginally improved to $3.17 million from the prior-year figure of $3.16 million. This upside is owing to robust sales in international markets and solid cost-saving measures.

Nabors Industries Ltd. Price, Consensus and EPS Surprise

Nabors Industries Ltd. Price, Consensus and EPS Surprise

Nabors Industries Ltd. price-consensus-eps-surprise-chart | Nabors Industries Ltd. Quote

Financials

Total costs and expenses declined to $669.5 million from $953.3 million in the year-ago quarter, reflecting lower depreciation costs and impairment charges.  

As of Jun 30, 2020, the company had $494.3 million in cash and short-term investments and a long-term debt of $3.3 billion with total debt to total capital of 69.9%.

Guidance

Nabors reiterates its previously announced 2020 capex guidance cut to $240 million, indicating a $185 million decrease from the year-earlier reported figure.

This Hamilton-based entity’s third-quarter average Lower 48 rig count is anticipated to fall by two to three rigs from the second-quarter figure of 49 rigs. Additionally, the company projects its drilling margins to shrink between $9,000 and $9,500, implying more normal costs and the continued impact of soft pricing.

However, its Canada Drilling segment estimates its third-quarter adjusted EBITDA to grow on the back of seasonal activity recovery. Also, the rig count is expected to rise by four rigs in the third quarter.

Zacks Rank & Key Picks

Nabors currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy space are Halliburton Company HAL, Core Laboratories NV CLB and Newpark Resources Inc NR, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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