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Inside WFT’s Free Cash Flow Expectation for 4Q16

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Nov. 14 2016, Updated 8:04 a.m. ET

Weatherford International’s operating cash flows

Weatherford International’s (WFT) CFO (cash from operating activities) was negative in 3Q16, although it improved marginally over 2Q16. WFT generated -$106 million in CFO in 3Q16. But WFT’s revenues have fallen sharply in the past year, leading to lower CFO.

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Free cash flow

For the past 13 quarters until 3Q16, Weatherford International’s FCF (free cash flow) has been volatile. WFT’s capital expenditure, or capex, was reduced by 53% in the past year until 3Q16. Despite the lower capex, its negative cash flow from operations led its FCF to turn negative in 3Q16. In 3Q16, WFT’s FCF was -$168 million, as compared to $3 million of positive FCF in 3Q15.

By comparison, Helix Energy Solutions Group’s (HLX) FCF turned further negative in 3Q16 over 3Q15. Helix Energy Solutions Group is Weatherford International’s lower market cap peer. Weatherford International makes up 0.03% of the iShares Russell 1000 Value ETF (IWD).

WFT’s free cash flow expectation in 4Q16

In the 3Q16 earnings conference call, Weatherford’s management said that expects its 4Q16 FCF to improve sequentially due to the following:

  • higher operating margins expected in 4Q16
  • higher customer collections
  • continued inventory reductions
  • lower cash severance payments

We’ll discuss Weatherford International’s historical valuation multiples in the next part of this series.

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