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Transocean (RIG) Down 13.2% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Transocean (RIG - Free Report) . Shares have lost about 13.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Transocean due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Transocean's Q2 Loss Wider Than Expected, Revenues Lag
Transocean reported second-quarter 2024 adjusted net loss of 15 cents per share, wider than the Zacks Consensus Estimate of a loss of 8 cents. However, the bottom line remained flat year over year.
Switzerland-based offshore drilling powerhouse’s total adjusted revenues of $861 million missed the Zacks Consensus Estimate of $866 million. This was due to lower-than-expected revenues from Ultra-deepwater floaters. The metric totaled $606 million, which missed the consensus mark of $617 million.
However, the top line increased 18.1% from the prior-year figure of $729 million. This outperformance was driven by increased rig activity and higher average daily revenues.
In a separate press release, the company recently declared a substantial 1,095-day contract with BP plc for its Deepwater Invictus drillship in the U.S. Gulf of Mexico. The contract is expected to generate $531 million in backlog (excluding additional services and mobilization fees) and set to commence in the first quarter of 2025.
Segmental Revenue Breakup
Transocean’s Ultra-deepwater floaters contributed 70.4% to net contract drilling revenues, while Harsh Environment floaters accounted for the remaining 29.6%.
Revenues from the Ultra-deepwater and Harsh Environment floaters totaled $606 million and $255 million, respectively, compared with the year-ago quarter’s reported figures of $536 million and $193 million. Revenues from Ultra-deepwater came in below our model projection of $645.7 million, while the same from Harsh Environment beat our estimate of $220.7 million.
Revenues efficiency was 96.9%, an increase from the previous quarter's 92.9% but lower than the year-ago quarter’s 97.2%.
Day rates, Utilization & Backlog
Average day rates in the reported quarter increased to $438,300 from $367,000 in the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $476,500.
Average revenues per day from Ultra-deepwater floaters increased to $433,900 from $380,600 in the year-ago quarter. The same from Harsh Environment floaters also increased to $449,600 from $332,000 in the comparable period of 2023.
Fleet utilization rate was 57.8% in the quarter, which increased from the prior-year period’s 54.7%.
Transocean’s backlog of $8.6 billion decreased sequentially from $8.9 billion.
Costs, Capex & Balance Sheet
The company reported $777 million in costs and expenses, which was 8.2% higher than the year-ago quarter’s level of $718 million. Additionally, operations and maintenance (O&M) costs increased to $534 million from $484 million a year ago. The company spent $84 million on capital investments in the second quarter.
Cash used in operating activities was $133 million. Cash and cash equivalents were $475 million as of Jun 30, 2024. Long-term debt amounted to $6.8 billion, with a debt-to-capitalization of 38.7% as of the same period.
Guidance
Third Quarter Expectations: Transocean’s management anticipates generating $940 million in contract drilling revenues in the third quarter. This projection is based on a fleet-wide revenue efficiency of 96.5%, a figure subject to variability influenced by operational uptime, weather conditions and other external factors.
The company expects to supplement its core drilling revenues with an additional $55 million derived from services and reimbursable expenses, typically characterized by low single-digit profit margins.
RIG’s O&M costs are projected to $610 million for the third quarter, primarily due to increased operational activity relative to the previous quarter.
The company’s general and administrative (G&A) costs are anticipated to decline to $50 million, primarily driven by reductions in personnel and professional fees.
RIG’s net interest expense is estimated at $145 million, while capital expenditures (CapEx) and cash taxes are projected to be $35 million and $10 million, respectively.
Full-Year Guidance: The company maintains its full-year revenue projection of $3.6 billion. This estimate incorporates an anticipated $215 million in additional services and reimbursable income, of which approximately $105 million was realized in the first half of the year.
Full-year O&M costs are expected to fall within the range of $2.2 billion to $2.3 billion. G&A costs for the entire year are anticipated to $215 million.
Transocean anticipates its year-end 2024 liquidity position to remain consistent with the second quarter at $1.4 billion. This figure covers the $576 million capacity of the undrawn revolving credit facility and roughly $390 million in restricted cash, primarily allocated to debt service requirements. The full-year CapEx budget is $250 million, with $115 million reserved for the Deepwater Aquila project. Approximately $15 million of this CapEx remains dedicated to the Aquila initiative.
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?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -516.67% due to these changes.
VGM Scores
Currently, Transocean has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.
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Transocean (RIG) Down 13.2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Transocean (RIG - Free Report) . Shares have lost about 13.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Transocean due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Transocean's Q2 Loss Wider Than Expected, Revenues Lag
Transocean reported second-quarter 2024 adjusted net loss of 15 cents per share, wider than the Zacks Consensus Estimate of a loss of 8 cents. However, the bottom line remained flat year over year.
Switzerland-based offshore drilling powerhouse’s total adjusted revenues of $861 million missed the Zacks Consensus Estimate of $866 million. This was due to lower-than-expected revenues from Ultra-deepwater floaters. The metric totaled $606 million, which missed the consensus mark of $617 million.
However, the top line increased 18.1% from the prior-year figure of $729 million. This outperformance was driven by increased rig activity and higher average daily revenues.
In a separate press release, the company recently declared a substantial 1,095-day contract with BP plc for its Deepwater Invictus drillship in the U.S. Gulf of Mexico. The contract is expected to generate $531 million in backlog (excluding additional services and mobilization fees) and set to commence in the first quarter of 2025.
Segmental Revenue Breakup
Transocean’s Ultra-deepwater floaters contributed 70.4% to net contract drilling revenues, while Harsh Environment floaters accounted for the remaining 29.6%.
Revenues from the Ultra-deepwater and Harsh Environment floaters totaled $606 million and $255 million, respectively, compared with the year-ago quarter’s reported figures of $536 million and $193 million. Revenues from Ultra-deepwater came in below our model projection of $645.7 million, while the same from Harsh Environment beat our estimate of $220.7 million.
Revenues efficiency was 96.9%, an increase from the previous quarter's 92.9% but lower than the year-ago quarter’s 97.2%.
Day rates, Utilization & Backlog
Average day rates in the reported quarter increased to $438,300 from $367,000 in the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $476,500.
Average revenues per day from Ultra-deepwater floaters increased to $433,900 from $380,600 in the year-ago quarter. The same from Harsh Environment floaters also increased to $449,600 from $332,000 in the comparable period of 2023.
Fleet utilization rate was 57.8% in the quarter, which increased from the prior-year period’s 54.7%.
Transocean’s backlog of $8.6 billion decreased sequentially from $8.9 billion.
Costs, Capex & Balance Sheet
The company reported $777 million in costs and expenses, which was 8.2% higher than the year-ago quarter’s level of $718 million. Additionally, operations and maintenance (O&M) costs increased to $534 million from $484 million a year ago. The company spent $84 million on capital investments in the second quarter.
Cash used in operating activities was $133 million. Cash and cash equivalents were $475 million as of Jun 30, 2024. Long-term debt amounted to $6.8 billion, with a debt-to-capitalization of 38.7% as of the same period.
Guidance
Third Quarter Expectations: Transocean’s management anticipates generating $940 million in contract drilling revenues in the third quarter. This projection is based on a fleet-wide revenue efficiency of 96.5%, a figure subject to variability influenced by operational uptime, weather conditions and other external factors.
The company expects to supplement its core drilling revenues with an additional $55 million derived from services and reimbursable expenses, typically characterized by low single-digit profit margins.
RIG’s O&M costs are projected to $610 million for the third quarter, primarily due to increased operational activity relative to the previous quarter.
The company’s general and administrative (G&A) costs are anticipated to decline to $50 million, primarily driven by reductions in personnel and professional fees.
RIG’s net interest expense is estimated at $145 million, while capital expenditures (CapEx) and cash taxes are projected to be $35 million and $10 million, respectively.
Full-Year Guidance: The company maintains its full-year revenue projection of $3.6 billion. This estimate incorporates an anticipated $215 million in additional services and reimbursable income, of which approximately $105 million was realized in the first half of the year.
Full-year O&M costs are expected to fall within the range of $2.2 billion to $2.3 billion. G&A costs for the entire year are anticipated to $215 million.
Transocean anticipates its year-end 2024 liquidity position to remain consistent with the second quarter at $1.4 billion. This figure covers the $576 million capacity of the undrawn revolving credit facility and roughly $390 million in restricted cash, primarily allocated to debt service requirements. The full-year CapEx budget is $250 million, with $115 million reserved for the Deepwater Aquila project. Approximately $15 million of this CapEx remains dedicated to the Aquila initiative.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -516.67% due to these changes.
VGM Scores
Currently, Transocean has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.