Helmerich & Payne Inc. (NYSE: HP). Our rating reflects the impact of weak energy markets, muted drill rig activity, and more limited capital spending by the company’s core E&P customers, as they prioritize capital discipline and return on equity over production growth.
On November 19, Helmerich & Payne reported an adjusted fiscal 4Q20 net loss (for the period ended September 30, 2020) of $78.7 million or $0.74 per share, compared to an adjusted net profit of $41.2 million.
The swing to a net loss was driven by operating losses in two of the company’s three business segments, as crude oil prices and drill rig activity fell sharply.
Fourth-quarter operating revenue was $208.3 million, down 68% from the prior-year quarter and down 34% from the previous quarter. In 4Q, HP incurred a restructuring charge of $552,000 (or $0.01 per share) related to the write-down of less capable rigs and excess equipment and inventory.
Helmerich & Payne has realigned its reporting structure and now reports results for three segments: North America Solutions, International Solutions, and Offshore Gulf of Mexico. We discuss fiscal fourth-quarter results for these segments below.
The North America Solutions segment posted an operating loss of $78 million, compared to an operating profit of $60 million in 4Q19. Average rig margins were down from the prior year, which more than offset lower operating expenses.
The International Solutions segment posted an operating loss of $3.5 million in 4Q19. The narrower loss reflected stronger drill rig revenue, aided by revenue reimbursements for prior projects. The results also included a $2.6 million foreign currency loss in the company’s South American operations.
The Offshore Gulf of Mexico segment posted 4Q operating income of $1.5 million.
For fiscal 2020, the company reported an adjusted loss from continuing operations of $0.99 per share, compared to adjusted EPS from continuing operations of $1.76 in fiscal 2019.
EARNINGS & GROWTH ANALYSIS
However, it does expect capital expenditures of $85-$105 million for the year, down from $141 million in fiscal 2020. Management also expects a year-end cash balance of $450-$500 million.
We are narrowing our fiscal 2021 loss estimate to $2.70 per share from $2.72. Our estimate reflects the impact of the pandemic and our lower revenue forecast for the year.
We are initiating a fiscal 2022 loss estimate of $1.74 per share, which assumes a diminishing impact from the pandemic but still tepid drill rig demand. The 2022 consensus calls for a loss of $1.76 per share.
FINANCIAL STRENGTH & DIVIDEND
Helmerich & Payne had total debt of $525.9 million at the end of 4Q19. The company has access to $750 million in liquidity under its new revolving credit facility.
The company ended the quarter with $577 million in cash and short-term investments (versus $348 million in 4Q19) and no amounts drawn on its $750 million revolving credit facility.
The company cut its annualized dividend from $2.84 to $1.00 per share in March 2020.
MANAGEMENT & RISKS
John W. Lindsay became CEO of Helmerich & Payne in March 2014, succeeding Hans Helmerich. Mr. Lindsay joined the company in 1987 as a drilling engineer. The Oil Services, Drilling and Equipment industry is one of the most volatile and unpredictable industries in the S&P 500. The main investment risk is the overall health of the global economy, though the industry also faces significant geopolitical risk.
Founded in 1920 and headquartered in Tulsa, Oklahoma, Helmerich & Payne is a petroleum contract drilling company focused on oil and gas well drilling.
We believe that the low multiples are warranted given prospects for continued low oil prices, weak E&P capital spending, and lower near-term demand for the company’s FlexRigs.
On November 27, HOLD-rated HP closed at $23.75, down $0.37.