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Will Weatherford International’s Free Cash Flow Dry Up?

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Weatherford International’s operating cash flows and capex

In this article, we will analyze how Weatherford International’s (WFT) operating cash flows trended over the past few quarters. We will also discuss how its free cash flows (or FCF) were affected given its capital expenditure (capex).

Weatherford International’s cash from operating activities (or CFO) was negative in 1Q16 and deteriorated over 1Q15. WFT generated -$205 million in CFO in 4Q15. WFT’s revenues fell sharply in the past year, leading to the lower CFO.

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Weatherford International’s free cash flow

In the past 13 quarters through 1Q16, Weatherford International’s FCF has been volatile. WFT’s capital expenditure fell by 81% through 1Q16. The company’s lower capex partially offset CFO’s shrinkage and in effect, its FCF improved marginally in the past year. In 1Q16, Weatherford’s FCF was -$248 million, compared to -$266 million in 1Q15.

In comparison, Forum Energy Technologies (FET) saw a 39% fall in its FCF in 1Q16 over 1Q15. Forum Energy Technologies is Weatherford International’s lower market cap peer, generating $22.5 million in FCF in 1Q16. Weatherford International constitutes 0.05% of the iShares Russell 1000 Value ETF (IWD).

WFT’s capex and free cash flow projections

Weatherford International’s (WFT) management revised down its fiscal 2016 capex to $250 million, or 63% lower than in fiscal 2015. Despite this revision, the company expects its fiscal 2016 free cash flow to fall $200 million lower than the last forecast.

WFT expects to generate $400 million–$500 million FCF in fiscal 2016. The key drivers for WFT’s capex guidance revision are earnings that are $350 million lower in fiscal 2016 compared to the earlier forecast.

Downward revision of free cash flow guidance has prompted WFT’s credit rating downgrade by the rating agencies. We will discuss that in the next article.

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