Atwood Oceanics, Inc. :ATW-US: Earnings Analysis: Q4, 2016 By the Numbers : November 22, 2016

Atwood Oceanics, Inc. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Atwood Oceanics, Inc. – Diamond Offshore Drilling, Inc., Parker Drilling Company, Helmerich & Payne, Inc., Transocean Ltd., Ensco plc, Pacific Drilling S.A., Rowan Cos. Plc Class A and Patterson-UTI Energy, Inc. (DO-US, PKD-US, HP-US, RIG-US, ESV-US, PACD-US, RDC-US and PTEN-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 188.68 million, Net Earnings of USD 4.25 million.
  • Gross margins narrowed from 53.19% to 34.52% compared to the same period last year, operating (EBITDA) margins now 49.81% from 60.82%.
  • Year-on-year change in operating cash flow of -9.19% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 188.68 227.8 296.35 307.82 363.18
Revenue Growth (%YOY) -48.05 -31.09 -15.42 -12.48 12.31
Earnings (mil) 4.25 99.51 122.44 39.08 150.69
Earnings Growth (%YOY) -97.18 -11.94 -0.19 -15.44 34.31
Net Margin (%) 2.25 43.68 41.31 12.7 41.49
EPS 0.07 1.53 1.89 0.6 2.32
Return on Equity (%) 0.53 12.58 16.09 5.27 20.93
Return on Assets (%) 0.37 8.34 10.22 3.27 12.65

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Market Share Versus Profits

Revenues History
Earnings History

ATW-US‘s change in revenue this period compared to the same period last year of -48.05% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ATW-US is holding onto its market share. Also, for comparison purposes, revenues changed by -17.17% and earnings by -95.73% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 53.19% to 34.52%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 60.82% to 49.81% in this time frame. For comparison, gross margins were 45.70% and EBITDA margins were 56.96% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ATW-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 181.91 days, compared to last year’s level of 102.74 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

ATW-US‘s change in operating cash flow of -9.19% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 49.17% to 28.24% and (2) one-time items that contributed to a decrease in pretax margins from 45.74% to 3.14%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Atwood Oceanics, Inc. is a global offshore drilling contractor engaged in the drilling and completion of exploratory and developmental oil and gas wells. It owns mobile offshore drilling units and is constructing ultra-deepwater drillships and high-specification jackups. The company was founded in 1968 and is headquartered in Houston, TX.

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