Shares of offshore energy services company Transocean (RIG -2.49%) fell 10% in the first half hour of trading on Feb. 23. The big news, however, came after the close on Feb. 22, when Transocean reported earnings. It was tough reading.
The headline number for Wall Street was Transocean's adjusted loss of $0.34 per share in the fourth quarter of 2020. That was down from a loss of $0.11 in the third quarter and well short of the $0.19-per-share loss that analysts had been expecting. Investors don't like it when companies miss consensus estimates, so it's not all that shocking that Transocean's stock fell.
The thing is, there was more bad news here. When the company reported fourth-quarter 2019 earnings, its backlog was $10.2 billion. In the third quarter of 2020, it reported that the backlog was $8.2 billion. The current earnings report pegs the backlog at $7.8 billion. There's still a lot of work to be done on that figure, but the declines hint that demand in the energy sector remains weak. And that doesn't bode well for the future here, even though management suggests that things will start to get better "later this year and into next year."
Although oil prices have been on the rise of late, and have actually returned to pre-coronavirus levels, the industry still appears to be holding back on the spending front. That's a headwind for companies like Transocean that support the energy sector's drilling efforts. Backlog, something of a proxy for demand, will probably be an increasingly important metric here for investors.