Image source: Transocean.
Monday opened the fourth quarter without the optimism that investors had last week, largely because concerns about the health of the ongoing economic expansion have begun to arise. Losses in the major market benchmarks were minimal, with declines in the 0.2% to 0.4% range being most common. Yet pockets within the market didn't hold up nearly as well, with the VanEck Vectors Gold Miners ETF (GDX +2.33%) falling almost 2% and reflecting weakness in precious metals. Some individual companies fared even worse, and Transocean (RIG +0.83%), KBR (KBR +0.00%), and Taser International (TASR +1.14%) were among the worst performers of the day.
Transocean loses a contract
Transocean fell 8% after the offshore drilling specialist said that one of its clients chose to terminate a contract for Transocean equipment prematurely. India's Reliance Industries elected to exercise its option under its contract with Transcoean to terminate its agreement for the ultra-deepwater drillship Discoverer India effective Dec. 2016. That came as a disappointment to investors, especially given that the contract was originally slated to expire in Jan. 2021.
Transocean will receive $160 million as a lump-sum payment in exchange for the early termination, but shareholders clearly believe that the offshore specialist won't be able to find a replacement party to make as favorable a deal as it had with Reliance. If oil prices don't rebound further in the near future, Transocean and other drilling companies could see continued pressure of a similar nature.
KBR cuts its outlook
KBR dropped 10% in the wake of its Friday afternoon announcement updating its earnings guidance for the full 2016 year. The engineering, procurement, and construction specialist said that higher costs were responsible for its need to reduce its earnings outlook, specifically pointing out a project for an electric-power generation facility that has suffered delays, poor productivity, and changes in strategy during the course of KBR's work.
With the added costs amounting to $130 million, KBR cut its guidance by roughly $0.90 per share, and now expects earnings in a range of $0.30 to $0.50 per share for the year. CEO Stuart Bradie noted that the issues "confirm that the decision for KBR to exit the fixed price [engineering, procurement, and construction] power business is the right one," but investors still found the earnings hit painful in the short run.
Taser isn't loving New York
Finally, Taser International declined 15%. The maker of stun guns and body cameras reportedly lost a potential supply contract for the New York Police Department that would have sent more than 1,000 body cameras to the force, instead choosing a lesser-known competitor. In addition, the Supreme Court chose not to grant certiorari in a case involving the use of a Taser stun gun, allowing a lower court's finding of an unconstitutional use of excessive force to stand.
Given its name recognition, the fact that Taser is losing business to rivals is disturbing. The company needs to avoid other high-profile contract losses if it wants to retain its leadership position in the market for non-lethal force and associated law enforcement services.
