Please ensure Javascript is enabled for purposes of website accessibility

Helmerich & Payne's Earnings Improve at a Frustratingly Slow Pace

By Tyler Crowe - May 1, 2018 at 11:46AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Even more patient investors would have thought things would be better by now.

Helmerich & Payne's (HP 1.04%) earnings have been a bit peculiar over these past few quarters. Even though rig counts have risen considerably since their nadir back in May 2016 and its fleet utilization numbers have grown, the oil rig lessor is still posting net losses each quarter. Considering how much better other oil services companies are doing lately, especially those with a large concentration in U.S. shale, it seems odd that Helmerich & Payne's results have been so slow to recover.

Let's examine the company's most recent quarterly report to see what is going on with this string of losses and what it will take for it to get back to turning a profit.

Drilling rig and pumpjack at sunset.

Image source: Getty Images.

By the numbers

Metric Q2 2018 Q1 2018 Q2 2017
Revenue $577.5 million $564.1 million $405.3 million
Operating income ($1.2 million) $3.5 million ($65.6 million)
EPS (Diluted) ($0.12) $4.55 ($0.45)
Free cash flow $26.7 million ($58.5 million) $7.8 million

Data source: Helmerich & Payne earnings release. EPS = earnings per share.

One thing that has been noticeable lately has been the slowdown in revenue growth we saw in the prior quarters. While producers are still adding rigs for their drilling programs, it is at a decidedly slower rate than what we saw a year ago. The side benefit to this is that expenses for rig reactivations have declined to the point that Helmerich & Payne's U.S. land drilling segment is pulling in a steady profit. This is helping to offset weakness in its offshore and international land segment, which shouldn't take much since its U.S. land segment is much larger than the other two business segments combined.

Graph of HP operating income by business segment for Q2 2017, Q1 2018, and Q2 2018. Shows declines for offshore and international offset by gains in U.S. land

Data source: Helmerich & Payne earnings release. Chart by author.

All in all, these numbers were fine, but what was more promising was the company's improving outlook for the upcoming quarter. According to its press release, Helmerich & Payne expects revenue from all three of its segments to increase, as it has received interest for its idle equipment. Also, the company continues to upgrade its fleet at a high rate, so there should be ample rigs to take up any spare capacity in the market right now.

What management had to say

Over the past few quarters, Helmreich & Payne has been bragging about its ability to take market share from its competitors. In the press release, CEO John Lindsay touted how the company's fleet is commanding a high market share and how it plans to gain even more over the next few quarters:

The demand for super-spec rigs continues to persist as the industry's super-spec fleet remains nearly 100% utilized. H&P leads the way with more than 40% of the super-spec market share in U.S. Land. We also have approximately 50% of the industry's idle rig capacity not already at super-spec capability that can be readily upgraded to those specifications in the current pricing environment. Our robust financial position and the composition of our fleet continues to drive our ability to respond to current and future FlexRig demand. Given the tightening market conditions for FlexRigs and the value proposition we provide for customers, we expect increases in average dayrates for our rigs in the U.S. Land spot market to accelerate during the next few months.

HP Chart

HP data by YCharts.

Market share now, payoff later

It's a little curious to see Helmerich & Payne continue to upgrade its fleet at such a fast pace when the rate of rigs getting added to the field has slowed down considerably. One would think it would be an opportune time to slow the upgrade rate to lower costs and focus on improving margins and cash flow. 

Instead, its high rate of upgrades and management's comments about market share suggest that the company wants to ensure that any rig getting added to the field today will be a Helmerich & Payne rig. It doesn't want to give any of its competitors any opportunity to add newbuild rigs to their fleets to meet incremental demand. After all, only 59% of Helmerich & Payne's U.S. land fleet is utilized. 

With oil prices rising steadily, it's likely that we will see a few companies increase their capital budgets and put a few more rigs into the field relatively soon. If Helmerich & Payne can capture those additional rigs, then this high rate of spending will have been worth it.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Helmerich & Payne, Inc. Stock Quote
Helmerich & Payne, Inc.
HP
$43.51 (1.04%) $0.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
311%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.