For the first time in what seems like years, oil services company Weatherford International (NYSE:WFT) actually showed some progress at cutting costs. It was by no means enough to turn the company into the profit column or generate enough cash to pay the bills, but after a dismal streak of peer performance, the company showed its first signs of life.

Let's take a look at Weatherford's most recent earnings results and see if this first step in the right direction is enough for investors to reconsider this stock. 

Oil rig workers standing around and talking to one another.

Image source: Getty Images.

By the numbers

Metric Q3 2018 Q2 2018 Q3 2017
Revenue $1.44 billion $1.45 billion $1.46 billion
Operating income ($13 million) ($75 million) ($70 million)
Net income ($199 million) ($264 million) ($256 million)
Diluted EPS ($0.20) ($0.26) ($0.26)

DATA SOURCE: WEATHERFORD INTERNATIONAL EARNINGS RELEASE. EPS= EARNINGS PER SHARE.

The nice thing to say about Weatherford's most recent results was that it is starting to get control of its costs. The company was able to improve margins enough that it increased operating income despite the 1% slide in revenue compared to the prior quarter. Management noted that it had realized about $300 million in benefits from its current cost-cutting plan, about 30% of management's goal.

What is strange, though, is that the company saw a decline in revenue compared to the prior quarter. Even though management divested some of its land drilling rigs and U.S. drilling activity has slowed down a bit in recent quarters, Weatherford reported flat revenue in its Eastern Hemisphere segment even though both of its larger peers reported significant upticks in business outside North America this past quarter. 

WFT operating income by business segment for Q3 2017, Q2 2018, and Q3 2018. Shows improvement in both segments.

Data source: Weatherford International. Chart by author.

This past quarter, Weatherford met its 2018 goals for asset sales by unloading its laboratory services business for around $200 million. In total, the company has sold off $500 million worth of assets that management says it plans to use to pay down debt. That really matters for the company because cash interest payments this quarter alone were $156 million. Trying to cover a debt load like that makes it close to impossible for Weatherford to turn a profit.

What management had to say

Management would be stretching the truth if it said that this past quarter was a good one, but CEO Mark McCollum did his best to highlight Weatherford's progress in cutting costs and keeping it on its turnaround path.

With a $195 million, or 56%, increase in adjusted EBITDA year-to-date compared to this time last year, these results represent a significant achievement and reaffirm the effectiveness of our transformation plan. Our progress reflects the discipline and accountability now being ingrained in our organization. I am confident that, having achieved approximately 30% of our annualized transformation goal, we will reach our $1 billion run-rate improvement target by the end of 2019. I believe we are just starting to see what this company is capable of.

During the quarter, we fell short of our revenue and cash flow goals, due in large part to transitory supply chain and manufacturing inefficiencies as well as continued challenges converting inventories to cash. We remain intensely focused on generating free cash flow and on reversing these trends.

The recent announcement of the sale of our laboratory services business earlier this month, combined with the previously announced land drilling rigs divestiture, will generate close to $500 million in cash proceeds, which will be used to reduce debt.

WFT Chart

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Still needs to prove it to investors

For years, Weatherford International's management has been promising a turnaround with a revolving door of cost-cutting plans and restructurings. Almost all of them have failed to gain traction. The recent cost savings and improving margins is the first time in a long time that there was some modicum of improvement. Management seems to think that it will be able to generate free cash flow in the fourth quarter, but that would require much better results than the ones it just posted.

Yes, the company's stock is cheap, but Weatherford has been a stock of broken promises for years. Until we can definitively see free cash flow and positive earnings results on a financial report, there's little reason to buy Weatherford's stock.

Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.