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Weatherford’s 2Q15 EPS Drops among the Most in Midcap OFS

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Sep. 22 2015, Published 8:25 a.m. ET

Comparing EPS growth

In this article, we will look into which select oilfield equipment and services, or OFS, groups recorded the best and worst earnings per share, or EPS, in 2Q15. None of the companies recorded earnings growth in 2Q15 over the corresponding quarter a year ago, but some have managed to fare better than the others.

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Transocean and Core Laboratories Fell Less than others

Transocean (RIG) recorded a 43% fall in 2Q15 EPS compared to the corresponding quarter a year ago. Transocean’s 2Q15 EPS fall was among the least in the midcap OFS space. Its 2Q15 net income was $342 million versus $587 million a year earlier. Besides decreases in operating and maintenance costs, as described in the previous section, RIG’s depreciation and general and administrative, or G&A, costs also decreased as a result of a lower asset base. In 2Q15, RIG recorded $890 million in impairment losses related to declines in projected day rates and lower utilization of its floater assets. Day rate is what the rig contractor receives from an upstream energy company for operating a drilling rig.

Core Laboratories (CLB) recorded a 43.4% fall in 2Q15 EPS compared to 2Q14. Its 2Q15 net income was $34.6 million versus $63.7 million a year earlier. The primary reason CLB’s net income declined in 2Q15 was lower revenue compared to 2Q14. Its G&A expenses increased due to higher compensation expenses. However, CLB’s operating costs declined in 2Q15 over 2Q14, partially offsetting the negative effects of rising costs on EPS. CLB is 0.33% of the iShares US Energy ETF (IYE).

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The underperformer

FMC Technologies (FTI) recorded a 52% fall in 2Q15 EPS compared to 2Q14. Its 2Q15 net income was $108 million versus $226 million a year earlier. At the operating income level, the cost of products and service revenues decreased in 2Q15. G&A expenses also decreased. However, FTI’s revenue drop caused net income to fall steeply, offsetting the savings from costs reductions. In addition, it recorded a $9.7 million pretax restructuring and impairment charge in 2Q15 as a result of the downturn in the energy market. FTI is 0.52% of the iShares North American Natural Resources ETF (IGE).

Weatherford’s woes deepen

Weatherford International’s (WFT) net loss deepened in 2Q15. Its 2Q15 net loss was $489 million, a sharp drop from its $145 million net loss a year earlier. The following are the primary reasons Weatherford’s 2Q15 EPS crashed:

  • Various litigation charges
  • Higher asset impairment charges compared to 2Q14, particularly related to WFT’s Russia and Latin America assets

Next, we will analyze the free cash flow growth of these companies.

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