The offshore drilling industry might be in a rut, but investors wouldn't know that from looking at Atwood Oceanics' (ATW) fiscal second-quarter report. The offshore driller blew past analysts' estimates on both the top and bottom lines. Moreover, these weren't muted estimates reflecting said weakness in the market. The company strongly grew both revenue and earnings over the year-ago quarter, led by the strength of its ultra-deepwater drilling segment.

Drilling down into the numbers
Atwood Oceanics reported revenue of $350.4 million, about $10 million higher than analysts were expecting. It was also well above the $273.1 million in revenue the company pulled in during its fiscal second quarter of last year.

Driving this strong revenue growth was the company's Ultra-Deepwater segment, which saw revenue surge to $183 million, or up $63 million year over year thanks to the delivery of its second ultra-deepwater drillship late last year. Also strong was the company's Deepwater segment, which grew revenue $19 million over the past year, though segment revenue was down $16 million quarter over quarter. Combined, these segments helped the company to more than overcome weaker revenue in the Jackups segment as well as reimbursable revenue.

This strong revenue growth helped to fuel strong net income growth as well. Atwood produced $122.7 million in net income for the quarter, or $1.89 per share. That was $0.23 per share better than analysts were expecting and $0.76 ahead of last year's fiscal second quarter. Fueling this better-than-expected profitability was that Atwood kept its costs in check. Contract drilling costs as a percentage of revenue in the company's Ultra-Deepwater segment has fallen from 38.3% to 37.2% over the past year. Meanwhile, over that same time frame, contract drilling costs as a percentage of revenue have fallen from 89% to 39% in the Deepwater segment and from 43.4% to 41.1% in the Jackups segment.

These strong earnings came even as the company recorded a loss of $5.5 million, or $0.08 per share, on the pending sale of the Atwood Hunter for recycling. This write-off was in addition to the $56.1 million, or $0.86 per share, it wrote of last quarter, resulting in that quarter's awful headline numbers.

A look ahead
One item that was noticeably missing from the company's report was any noted impact from the Atwood Osprey, which was damaged by a cyclone in March. The company noted in a press release in mid-April that it's getting the damage fixed and expects the vessel to be back in service at the end of this month. However, that event triggered termination rights with Atwood's customer and is resulting in that rig's contract to end a year earlier than expected. It's likely any financial impact from this incident could show up in Atwood's fiscal third-quarter report.

In addition, the company has one jackup rig, the Atwood Mako, whose contract is set to expire at the end of this next quarter. In January, the company announced that the Mako was awarded a 70-day contract for work that was set to being in late March. Further, that contract also had an option for an additional term. Ideally, that option will be exercised so that the rig will continue generate revenue. Otherwise, the rig could need to be idled, which would lead to weaker Jackup revenue later this year.

Investor takeaway
Atwood Oceanics really delivered a strong quarter. Not only did it crush analysts' estimates, but these also weren't muted estimates, and it did so despite another writedown of a rig it's retiring. While there are still some concerns ahead in 2015, the company's strong contract backlog is helping it weather the very weak oil market.