Why Is Nabors (NBR) Down 80.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Nabors Industries (NBR). Shares have lost about 80.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nabors due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Nabors Reports In-Line Q4 Loss, Revenues Miss Mark

Nabors Industries Ltd (NYSE:NBR).’s fourth-quarter 2019 loss from continuing operations (excluding special items) came in at 24 cents per share, in line with the Zacks Consensus Estimate, primarily due to weak performance of the International and U.S. drilling segments.

However, the bottom line is narrower than the year-ago adjusted loss of 25 cents owing to a marginal rise in daily gross margin, driven by stable pricing, excellent operating performance and a favourable rig mix.

Quarterly revenues of $715.8 million fell short of the Zacks Consensus Estimate of $743 million. Moreover, the top line was lower than the year-ago level of $776.6 million.

Notably, year over year, Nabors’ adjusted EBITDA grew from $201.6 million to $202.5 million.

Segmental Performance

U.S. Drilling segment generated quarterly operating revenues of $289.5 million, down 4.71% from the year-ago level of $303.8 million. The segment recorded an operating income of $6.8 million, significantly lower than the year-ago income of $8.9 million due to drop in the rig count at Lower 48.

Canadian Drilling segment’s revenues came in at $19.38 million in the quarter under review, down 33.22% from the year-ago figure of $29.02 million. Moreover, the segment’s operating loss came in at $3.19 million against the year-ago quarter’s income of $0.93 million amid a weak market environment for rig components.

International Drilling segment’s operational revenues of $331.7 million decreased 3.9% from the year-ago quarter’s $345.08 million as well as lagged the Zacks Consensus Estimate of $336 million. However, the segmental operating income of $1.15 million in the reported quarter came in against the prior-year loss of $0.48 million. The primary reason for this upside was a step forward in the earlier-implemented initiatives to reduce operating costs as well as operational efficiency.

Revenues from the Drilling Solutions segment were down to $60.5 million in the fourth quarter from $66.8 million a year ago and also missed the Zacks Consensus Estimate of $62 million. However, the unit’s operating income of $16.7 million improved from $11.85 million. This can be attributed to higher-margin international activity along with activities related to tubular running services (TRS) in the United States.

Revenues from the Rig Technologies segment decreased 14.3% to $52.6 million from the prior-year level of $61.4 million. The same also missed the Zacks Consensus Estimate of $61 million. Moreover, the segment’s operating loss widened to $5.95 million from the prior-year loss of $5.21 million. This downside is due to declined sales of parts alongside lower repair activity.

Financials

Total costs and expenses rose to $974 million from $920.2 million in the year-ago quarter, reflecting higher G&A costs and impairment charges.

As of Dec 31, 2019, the company had $452.5 million in cash and short-term investments and $3.33 billion as long-term debt with a debt-to-capitalization ratio of 62.7%.

Guidance

Per the company, competitive pressures are likely to dent daily margins of the U.S. Drilling segment to nearly $10,000 in the first quarter of 2020 whereas for the Canadian Drilling segment, the company projects an increase in daily margin and a rise in rig count for the same period.

Nabors’ full-year capex is projected in the range of $350-$370 million, lower than $424 million incurred in 2019. For the current year, Nabors expects to generate free cash flow of at least $300 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -16.07% due to these changes.

VGM Scores

At this time, Nabors has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Nabors has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.