A month has gone by since the last earnings report for Nabors Industries (NBR). Shares have added about 3.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Nabors due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Nabors Industries' Q3 Earnings & Revenues Lag Estimates
Nabors Industries reported a third-quarter 2024 adjusted loss of $3.35 per share, which was wider than the Zacks Consensus Estimate of a loss of $1.79. This underperformance was due to higher year-over-year general and administrative expenses, research and engineering expenses, interest expenses and other expenses. However, the loss was significantly narrower than the year-ago quarter’s reported loss of $5.4 per share.This improvement resulted from better operating income from NBR’s International Drilling and Drilling Solutions segments.
The oil and gas drilling company’s operating revenues of $731.8 million missed the Zacks Consensus Estimate of $750 million and decreased from the year-ago quarter’s $744.1 million. This was due to poor performance from the U.S. Drilling and Rig Technologies segments.
On the other hand, adjusted EBITDA increased to $221.7 million from $210 million recorded a year ago. The figure missed our model estimate of $250 million.
The company recently announced a deal to acquire Parker Wellbore. Parker's businesses include Quail Tools, a leading U.S. provider of tubular rentals, along with international tubular rentals, well construction services (like casing running) and drilling rigs. Nabors sees potential synergies of $35 million annually within 12 months after the deal closes.
In the quarter, NBR's rigs in the Lower 48 hit new performance records. In the Delaware Basin, a major operator drilled three wells, each with four-mile-long sections, using a Nabors PACE-X rig equipped with a Canrig Sigma topdrive. This topdrive has the highest torque in the industry, making it perfect for handling the larger drill pipes needed for these wells. The rig also used advanced NDS technology to boost performance.
Nabors achieved impressive results, highlighted by a major operator in the Eagle Ford drilling its longest well in the basin, with a lateral length exceeding four miles. This impressive feat was accomplished in a single run without rotary steerable systems, utilizing a Nabors PACE-M1000 rig and larger-diameter drill pipe.
Additionally, another significant milestone was also reached in the Bakken, where a major operator completed a four-mile lateral well in under 12 days in a single run with a Nabors PACE-X rig. This marks the operator's first four-mile lateral. The company believes this to be the fastest ever completed in the Bakken. The rig was fully equipped with the advanced NDS Smart technology package, further enhancing its performance in this quarter.
Segmental Performances
U.S. Drilling generated operating revenues of $254.8 million, down 7.8% from the year-ago quarter’s $276.4 million. The figure also missed our model estimate of $271.8 million. Operating profit totaled $41.7 million compared with $49.6 million in the year-ago quarter. The figure missed our estimated profit of $49.8 million.
International Drilling’s operational revenues of $368.6 million increased from $344.8 million a year ago. The unit’s top line also beat our estimate of $366.7 million. Operating profit totaled $32.2 million compared with the prior-year quarter’s $9.9 million. The figure also surpassed our estimated profit of $19.6 million.
Revenues from the Drilling Solutions segment totaled $79.5 million, up 9.2% from $72.8 million recorded in the prior-year quarter. The top line also beat our estimate of $75.8 million.Additionally, the unit’s operating income of $29.2 million was higher than the year-ago quarter’s $25.3 million. The figure also surpassed our projection of $28.8 million.
Revenues from Rig Technologies totaled $45.8 million, down 22.2% from the prior-year quarter’s $61.4 million. Additionally, the figure missed our projection of $47.2 million. The segment’s operating profit totaled $2.8 million compared with the prior-year quarter’s $5 million.The figure also missed our projection of $5.7 million.
Financial Position
Nabors’ total costs and expenses increased to $766.3 million from $764.9 million in the year-ago quarter. Additionally, the amount surpassed our prediction of $728.7 million.
As of Sept. 30, 2024, the ompany had $459.3 million in cash and short-term investments. Long-term debt was about $2.5 billion, with a total debt-to-total capital of 92.9%.
In the third quarter of 2024, Nabors generated $17.5 million in adjusted free cash flow. Capital expenditures totaled $118 million, with $37 million allocated for new builds in Saudi Arabia.
Guidance
For the fourth quarter of 2024, NBR anticipates an average rig count of approximately 68 in its U.S. drilling segment, with a daily margin of $15,000. The company expects adjusted EBITDA from its operations in Alaska and the Gulf of Mexico to reach $1.5 million, reflecting an increase from the previous quarter, supported by the addition of an extra rig in Alaska.
For its International Drilling segment, Nabors predicts an average rig count of around 84, with a daily adjusted gross margin of approximately $17,000.
In terms of financial performance, the company expects adjusted EBITDA of $36-$37 million from its Drilling Solutions segment and $9-$10 million from Rig Technologies segment.
Nabors plans capital expenditures of $230 million for fourth-quarter 2024, with $105 million allocated for new builds in Saudi Arabia. For the year, total capital expenditures are projected to be around $600 million, which includes $230 million dedicated to SANAD new builds. This prediction incorporates accelerated timelines from SANAD's rig supplier, totaling an estimated $40 million.
Additionally, NBR anticipates full-year adjusted free cash flow to range between $100 million and $130 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 -42.71% due to these changes.
VGM Scores
At this time, Nabors has a great 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 A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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. It's no surprise Nabors has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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