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Why Weatherford International Fell despite Margin Improvement

PART:
1 2 3 4 5 6 7
Part 2
Why Weatherford International Fell despite Margin Improvement PART 2 OF 7

Weatherford International: Management’s Views for 2Q17

Management’s views on energy

Weatherford International’s (WFT) management doesn’t expect energy prices to increase sharply from the current level. Mark McCollum, WFT’s newly appointed CEO (chief executive officer) commented in the 1Q17 conference call, “The new market reality is a range bound oil price that we expect to remain between $50 and $55 for the year. The reduction in oilfield activity over the past 2 years has resulted in a significant underinvestment that now must be corrected. As production levels come back into balance with demand, the oilfield service sector will slowly become stronger.” WFT makes up 3.1% of the VanEck Vectors Oil Services ETF (OIH). Since March 31, 2017, OIH has fallen 16.0% compared to the 20.0% fall in WFT stock. The energy sector makes up 6.0% of the S&P 500 Index (SPX-INDEX), which has risen 3.0% since March 31, 2017.

What’s WFT’s cost reduction target?

As of March 31, 2017, Weatherford’s management has laid off 2,500 employees of the total planned reduction of 3,000. WFT also ceased operations in six manufacturing facilities in 1Q17. In fiscal 2016, it saved $601.0 million through employee reductions and manufacturing closures. Through these optimizations and restructuring, WFT believes it has transitioned to a lower cost base. Read Market Realist’s Paying the Price: SEC Finished Investigating Weatherford to know more about WFT.

Weatherford International: Management&#8217;s Views for 2Q17

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Weatherford’s 2Q17 growth drivers: The negatives

  • continued challenging environment in the offshore market in the Gulf of Mexico
  • 2Q17 margins in the United States to be below 1Q17, led by a weak offshore market
  • lower product sales in the North Sea and Russia

Weatherford’s 2Q17 growth drivers: The positives

  • revenue from US operations to grow fast
  • incremental revenue from several projects in Latin America
  • seasonal increase in both the North Sea and Russia
  • the Middle East and Asia region to rebound as new contracts ramp up

Next, let’s take a look at Weatherford International’s revenue and earnings.

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