Has Dawson Geophysical's Growth Well Run Dry?

Source: Dawson Geophysical.

The oil and natural gas production boom has refocused America's attention on the energy sector over the past several years, and the opportunities for success in the industry have been widespread. Apart from traditional exploration and production companies, many oil-services businesses have thrived, and Dawson Geophysical (DWSN 0.63%) and its valuable seismic detection and data-processing services would seem like a natural beneficiary of the energy boom. Yet coming into this week's fiscal fourth-quarter earnings report, Dawson hasn't generated the excitement that energy investors want to see, with the company having produced losses and the stock having plunged by more than half since the beginning of the year.

Dawson Geophysical claims the status as America's leading provider of onshore seismic data acquisition services, helping oil and gas drillers find the most lucrative prospects to drill. Yet that leaves Dawson almost entirely exposed to the health of the industry, and as oil prices have fallen and natural gas prices have stayed relatively low, Dawson's customers haven't been as willing to spend on exploration as they were in the past. Let's take an early look at what's been happening with Dawson Geophysical over the past quarter and what we're likely to see in its report.

Stats on Dawson Geophysical

Source: Yahoo! Finance.

Can Dawson Geophysical earnings strike oil this quarter?

Investors have gotten decidedly pessimistic in recent months about Dawson Geophysical's earnings prospects, reversing their initial expectations for profits for the quarter and the full 2014 fiscal year and now expecting losses. Moreover, they've chopped their fiscal year 2015 projections in half, and the pessimism has lopped off a third of the stock's price just since early August.

Dawson has seen substantial declines in the health of its business this year, with the company's fiscal third-quarter results back in August only being the latest sign of the company's weakness. For the quarter, revenue fell by more than 28%, sending the company to a loss of $0.94 per share compared to a year-earlier $0.50 per-share profit. Dawson blamed the shortfall on delays caused by its customers, issues regarding the readiness of projects for Dawson's services, and a resulting reduction in the use of Dawson's crews. Weather was a minor issue in the third quarter, but it played a much more significant role earlier in the year and had helped to create the downward trend for the company's stock.

Source: Dawson Geophysical.

Dawson's management team has identified the problem and is working hard to fix it. CEO Stephen Jumper said in August that Dawson "experienced a difficult environment during the previous four quarters" but that it is "working diligently to mitigate these challenges" by working more closely with its customers and finding better ways to manage its crew count. Still, at this point, it's uncertain how quickly Dawson will be able to bounce back. Even with the company managing to resolve some of its issues late last quarter, Dawson only expects to work 10 operating crews through the end of calendar 2014, down from an average of 12 to 13 crews in the recent past.

One major move that Dawson hopes will drive future growth came after the end of the quarter, when it announced in early October that it would merge with TGC Industries (NASDAQ: TGE) in a transaction that would result in current TGC shareholders owning about a third of the combined entity. Texas-based TGC also provides seismic-data acquisition services, and Dawson believes that the combination should expand its overall geographical presence and lead to synergies from having complementary equipment, processes, and better technology.

In the Dawson Geophysical earnings report, look closely to see if conditions for the seismic provider remain generally unfavorable, especially as oil prices have fallen precipitously in recent weeks. By also looking at signs of how the TGC merger is going, Dawson investors should be able to get a sense of whether the tide is likely to turn for the energy-services company anytime soon -- or whether its boom-driven profits have run dry for good.