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Weatherford International Can't Make Any Progress Toward a Profitable Future Like This

By Tyler Crowe - Feb 7, 2018 at 9:49AM

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The oil services company is buried so deep with debt and a lack of profitability that it's hard to see how management steers its way out of this mess.

Stop me if you have heard this story before, but Weatherford International (NYSE: WFT) reports disappointing results because of what it calls one-time charges, and then management discusses a plan to restructure the business to cut costs. It seems like this is the pitch we have heard from Weatherford for years, but this is exactly what happened during Weatherford's most recent earnings report. 

Is there anything different this time around? Let's take a look at the company's most recent results and what, if anything, suggests this is the time that Weatherford gets its act together.

Drilling rig at twilight.

Image source: Getty Images.

By the numbers

Metric Q4 2017 Q3 2017 Q4 2016
Revenue $1.49 billion $1.46 billion $1.41 billion
Operating income ($1.74 billion) $34 million ($399 million)
Net income ($1.93 billion) ($256 million) ($549 million)
EPS ($1.95) ($0.26) ($0.59)

Source: Weatherford International earnings release. EPS= earnings per share.

Like so many other companies this past quarter, Weatherford's bottom line results were significantly impacted by some charges to the income statement. Unlike the rest, though, Weatherford's charges related to writing down the value of some of its assets as well as some other impairment charges totaling $1.59 billion. Over the past three years, the company has taken $3.94 billion in these one-time or non-recurring charges.

This past quarter, Weatherford also changed the way in which it reports its business segments. Instead of the previous four regional segments and land drilling rigs, the company has condensed into two segments: Western and Eastern hemisphere. Here's how its results stack up under these new reporting segments. 

WFT operating income by business segement for Q4 2016, Q3 2017, and Q4 2017. Shows both hemispheres reporting.

Source: Weatherford International earnings release. Chart by author.

No matter how the company reports its results, though. They aren't encouraging. The thing that stands out the most compared to its larger peers is the lack of revenue growth. While Halliburton (HAL 3.03%) and Schlumberger (SLB 0.23%) reported year-over-year revenue growth of 47% and 15%, respectively, Weatherford's came in at just 5%. It seems apparent that the company is losing ground to its larger brethren.

The only real positive tidbit in this earnings report is that the company managed to produce positive operating cash flow this past quarter, which is something the company hasn't been able to do for a long time. It comes as part of CEO Mark McCollum's plan to make the company a leaner organization and reduce its inventories and working capital. That said, cash generated from operations still wasn't enough to cover all its spending obligations and its total debt outstanding remains the same. The company gained a little cash at the end of the year when it elected to terminate a joint venture with Schlumberger and elected to sell the equipment dedicated for the joint venture for cash instead. Management said it plans to use that cash to pay down some debt. 

What management had to say

In a press release statement, CEO Mark McCollum discussed his own restructuring plan in hopes of finally getting this company back on the right track.

In 2017, we set the stage for the future of Weatherford. We have made significant progress, taking decisive and strategic actions throughout 2017. In addition to realigning and flattening our structure, we initiated an organizational transformation plan that will create an estimated $1 billion in profit improvements over the next 18 to 24 months. Since announcing this plan last quarter, we have taken further steps as an organization to develop rigorous, detailed plans and validate our ability to meet this target.

WFT Chart

WFT data by YCharts

What a Fool believes

Weatherford International continues to drag through the mire of corporate restructuring as management moves to make this into a profitable company, but every effort thus far has led to little to no progress and today the company is in a situation equivalent to what a homeowner would call underwater with its mortgage as total liabilities are more than its total assets. What's even worse is that even though Weatherford has taken billions in charges and writedowns to its income statement and balance sheet, somehow goodwill and intangible assets are the largest assets on the books.  

Weatherford brought in McCollum from Halliburton to turn this company around, but the task ahead of him seems almost insurmountable. No cash flow means it can't adequately invest and grow its desirable products and services, and it can't really rely on outside capital anymore to bridge those funding gaps. Whatever hope there was for Weatherford's previous restructuring plans, it's hard to see investors getting excited for this new one unless we see significant results soon.

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Schlumberger Limited Stock Quote
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