Weatherford: 2Q Highlights – Revenues up 8%
Weatherford International plc reported net income before charges of $186 million, ($0.24 diluted earnings per share on a non-GAAP basis) on revenues of $3.71 billion for the second quarter of 2014.
- Revenue increased 8% sequentially excluding the seasonal impact in Canada; the increase was 3% including Canada;
- Operating income margins improved 280 basis points sequentially to 14% and were led by a 576 basis point improvement in the Eastern Hemisphere;
- Reduction in net debt of $101 million, driven by positive free cash flow;
- Execution of an agreement to sell the Company’s land drilling and workover rig operations in Russia and Venezuela for cash consideration of $500 million; and
- Continued execution of the plan to reduce the cost base of our core businesses. To date, the Company has completed approximately 90% of the reduction in workforce.
Bernard J. Duroc-Danner, Chairman, President and Chief Executive Officer commented, “With well-defined operating and financial objectives grounded on careful analysis of our operations, Weatherford has moved significantly forward. Our results are a reflection of our direction, and our entire organization’s commitment to an unwavering focus on three simple actions: Core, Cost and Cash.
Weatherford’s operating income margin for core businesses was 16.5% for the quarter. This compares with 15.1% for the first quarter of 2014. Sequentially, our core business revenue grew 3% (8% excluding the seasonal impact in Canada). Well Construction, Formation Evaluation and Artificial Lift product line margins expanded sequentially. Stimulation revenue and profitability improved measurably as utilization increased and efficiency efforts were realized. Strong growth is expected in core businesses during the second half of the year.
In the second quarter, headcount reduction efforts were essentially completed. The cost savings will continue to support results in the second half of the year. In addition, the process of identifying and exiting underperforming operating locations is well underway with 26 locations actioned. We are confident that we will achieve the $500 million annualized savings goal we have set ourselves early this year. These savings will underpin our operating income margin improvements this year and into 2015.
Net debt decreased by $101 million in the second quarter and the Company generated $59 million in free cash flow from operations. Capital efficiency is now a way of life, and our free cash flow and debt reduction goals for the year remain unchanged.”
Second Quarter 2014 Results
Revenue for the second quarter of 2014 was $3.71 billion compared with $3.60 billion in the first quarter of 2014 and $3.87 billion in the second quarter of 2013. GAAP Net Loss for the second quarter of 2014 was $145 million, or $0.19 loss per diluted share. After-tax charges for the second quarter of $331 million included:
$121 million, net of tax, to recognize a non-cash impairment charge on long-lived assets related to the planned sale of land rigs in Russia and Venezuela;
$125 million, with no income tax benefit, for a non-cash impairment charge related to goodwill in Russia;
$68 million, net of tax, primarily associated with severance and exit costs related to our workforce reduction and the shutdown of loss making businesses in certain markets;
$14 million of professional fees and other costs, net of tax, largely associated with our divestiture program activities and our recently completed re-domestication from Switzerland to Ireland; and
$3 million, net of tax, associated with our legacy lump sum contracts in Iraq.
Net income on a non-GAAP basis for the second quarter of 2014 was $186 million compared to $99 million in the first quarter of 2014 and $116 million in the second quarter of 2013.
Weatherford’s increase in operating income represents the largest sequential improvement since the fourth quarter of 2005. The sequential operating income improvements were driven by:
North America, due to higher U.S. activity levels and operating efficiencies, which more than offset the impact of the seasonal spring break-up in Canada, strongly supporting a 271 basis point sequential increase in operating results;
Europe/Sub-Sahara Africa/Russia, with a strong recovery from the severe first quarter seasonal decline in Russia and increases in activity in the North Sea and Continental Europe as well as continued growth in Sub-Sahara Africa driving a 873 basis point improvement in operating income margins; and
Middle East/North Africa/Asia Pacific, where continued improvements in the Gulf countries and Iraq coupled with the seasonal recovery in China contributed to a 273 basis point rise in operating income margins.
These improvements were partially offset by Latin America margins, which were weighed down by incremental start-up costs in Brazil for new contracts, lower levels of activity in Mexico and increased costs due to labor disruptions in Argentina.
Europe/Sub-Sahara Africa/Russia
Second quarter revenues of $750 million were up $86 million or 13% sequentially, and up $69 million, or 10%, over the same quarter in the prior year. Second quarter operating income of $126 million (16.8% margin) increased $72 million, or 133%, sequentially and up 52% when compared to the same quarter in the prior year. The increase in sequential revenues and operating income was led by the seasonal recovery in Russia, improvements in activity in the North Sea and Continental Europe and continued growth in Sub-Sahara Africa, led by Formation Evaluation and Completion.
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