The earnings calls of the big four oil services companies, including Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), Baker Hughes (NYSE:BHI), and Weatherford (NYSE:WFT), have confirmed that North American activity is on the rise and that pricing traction is coming to the oil services sector. Moreover, global markets for oilfield services are also steadily improving.

Weatherford was the last of the large-cap companies to report earnings. The company reported first quarter operating EPS of $0.13, topping Wall Street estimates of $0.11 by 18%.

Transformation gains credibility
Weatherford's turnaround story continues to gain credibility and momentum, and unlike in the past the transformation is real this time. Weatherford has completed its financial restatement. The company is done with the Department of Justice's (DOJ) investigations related to Foreign Corrupt Practices Act (FCPA). As a reminder, the SEC charged Weatherford with violating the Foreign Corrupt Practices Act by authorizing bribes and improper travel and entertainment for foreign officials in the Middle East and Africa to win business, including kickbacks in Iraq to obtain United Nations Oil-for-Food contracts. Weatherford paid $253 million to settle the investigation in 1Q14.

Weatherford's non-core asset divestitures are expected to generate over $1 billion in proceeds and should be completed by 4Q14. The company will conclude the wind-down of loss-making contracts in Iraq by 3Q14. Weatherford also plans to reduce its debt by almost 20% by year-end.

Weatherford's annual cost savings of $500 million should be virtually completed by 2Q14. As the focus on capital efficiency increases, the company is expected to close 50 loss-making facilities around the world by 2Q14. Finally, the company expects to generate $500 million in free cash flow this year, which would be positive FCF for the first time in a decade.

Cost savings adding to earnings growth
Weatherford continues with its cost reduction programs and plans to lower its cost structure by $500 million after-tax, including a headcount reduction of 6,600 employees within its core businesses and the closing of 50 locations worldwide. Out of 6,600 positions identified, over 4,300 employees are already out of the company. As far as closing facilities is concerned, the company already began the process of closing 20 facilities in the first quarter and will begin the rest in the second quarter.

The personnel reductions are expected to generate $0.25 per share in savings in 2H13, with the facility's reductions generating another $0.05. More importantly, these cost savings are structural, meaning permanent reductions in costs. Cost savings are contributing significantly to year-over-year growth in earnings. When compared to $0.60 in operating EPS generated in 2013, the costs savings of $0.30 per share that the company is expected to generate in 2014 represent over half of the earnings growth embedded in Weatherford's 2014 EPS guidance of $1.10-$1.20.

Strong 2H14
Weatherford expects to generate EPS of $1.10-$1.20 for 2014. However, the 2Q14 EPS guidance range of $0.21-$0.23 suggests that more than two-thirds of the company's 2014 earnings will come in the second half of the year. The company already has contracts in place that should generate strong 2H14 earnings. Weatherford's core businesses, comprised of well construction, well completions, artificial lift, formation evaluation, and well stimulation, are expected to close the year with a consolidated operating margin in the 19%-20% range.

Steps taken to increase investor confidence
Weatherford has linked its management compensation to four key metrics, including earnings, cost reduction, free cash flow generation, and finally net debt reduction. The company has set clear short-term and long-term goals and plans to update investors at least once every quarter. This should allow investors to hold management accountable in case the company falls behind its targets.

Weatherford now provides unparalleled transparency compared to its peers. The company has often insisted in the past that the strong performance of its core businesses was overshadowed by several poor performing non-core businesses. However, the company failed to gain much investor confidence due to limited data.

Starting in 2014, Weatherford provided revenue and margin breakdowns of its five core segments and the remaining non-core segments. While Schlumberger, Halliburton, and Baker Hughes provided a geographical breakdown of revenue and EBIT, Weatherford now has the most transparent revenue structure by product line. This increased transparency, performance-driven management compensation, and accountability should all increase investor confidence in the company.

Bottom line
Weatherford's transformation is finally taking place. Global markets for oilfield services are steadily improving. The company's long and painful restructuring and tax remediation journeys seem to be finally coming to an end. The company's back office issues, including restatement of financial statements and the DOJ settlement related to FCPA-sanctioned countries, are behind it now.

Divestitures are finally starting to take place, and non-core asset divestitures yielding over $1 billion in proceeds should be completed by the fourth quarter. Most of its planned annual cost savings should be completed by the second quarter. Finally, management compensation linked to performance and increased transparency should increase investor confidence in the company. All these steps should make their respective contributions to operating performance soon.


Jan-e- Alam has no position in any stocks mentioned. The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.