Energy services provider Helix Energy Solutions Group (HLX 4.52%) opened the day dramatically higher on July 23, rising roughly 33% in the first few minutes of trading. There's little doubt what got Wall Street so excited: It was the company's earnings release after the close on July 22.
Helix provides offshore drilling services to the energy industry. The problem is that oil and natural gas prices are low right now and drillers have, thus, been pulling back on spending. That has a material impact on services providers like Helix, which basically end up with less business. To give an idea of how bad things are, Helix lost $0.09 a share in the first quarter of 2020, which was only partially impacted by the COVID-19 demand disruptions that have tanked the energy market. Investors have clearly been expecting the bad news to continue, with the stock down about 50% through July 22.
That view may have changed today, when the stock rocketed higher following the company's second-quarter earnings release. Helix posted a profit of $0.04 a share, which is a vast improvement over the first quarter. And while management noted that the rest of the year is likely to remain challenging, Wall Street was clearly impressed that the energy services company was able to get itself back into the black. That said, second-quarter earnings were down more than 60% year over year in the quarter, with revenue roughly flat and gross profit margin lower by 25%. It would be hard to call this a good quarter, though perhaps it may represent an important inflection point. It's also worth noting that the company's second-quarter performance led at least one analyst to boost the stock's rating, a move that also likely aided in the day's price advance.
Helix Energy Solutions operates in one of the more volatile niches in the energy sector. While the second quarter was a relatively good one, given the circumstances, the broader energy industry remains stuck in a massive supply/demand imbalance that is likely to take a lot more time to heal. Today's early gain is nice, but investors' moods could shift in a negative direction just as quickly as they shifted in the positive direction this morning. Caution is appropriate, with a high likelihood that volatility remains elevated for the foreseeable future.