Key Energy Services, Inc. reports financial results for the quarter ended June 30, 2017.
- Summary numbers: Revenues of USD 107.78 million, Net Earnings of USD -13.18 million.
- Gross margins widened from -31.85% to 21.63% compared to the same period last year, operating (EBITDA) margins now 12.92% from -37.02%.
- Change in operating cash flow of 61.04% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
- Earnings growth from operating margin improvements as well as one-time items.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:
|Relevant Numbers (Quarterly)|
|Revenue Growth (%YOY)||13.44||-8.67||-27.59||-42.1||-51.89|
|Earnings Growth (%YOY)||85.79||42.58||207.02||79.58||-41.94|
|Net Margin (%)||-12.23||-46.19||150.06||-127.68||-97.67|
|Return on Equity (%)||-6.71||-21.13||410.43||N/A||-700.84|
|Return on Assets (%)||-8.84||-29.7||78.95||-49.22||-31.51|
Access our Ratings and Scores for Key Energy Services, Inc.
Market Share Versus Profits
Compared to the same period last year, KEG-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if KEG-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 6.24% and earnings by 71.87% compared to the previous period.
Earnings Growth Analysis
The company’s earnings growth was influenced by year-on-year improvement in gross margins from -31.85% to 21.63% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -37.02% to 12.92% compared to the same period last year. For comparison, gross margins were -7.05% and EBITDA margins were -16.55% in the last reporting period.
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.
KEG-US’s improvement in gross margin has been accompanied by an improvement in its balance sheet as well. This suggests that gross margin improvements are likely from operating decisions and not accounting gimmicks. Its working capital days are now 90.85 days compared to 173.07 days for the same period last year.
Cash Versus Earnings – Sustainable Performance?
It is important to examine a companyï¿½s cash versus earnings numbers to gauge whether its performance is sustainable.
KEG-US’s year-on-year change in operating cash flow of 61.04% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.
The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -74.90% to -6.52% and (2) one-time items. The company’s pretax margins are now -13.02% compared to -97.81% for the same period last year.
Access our Ratings and Scores for Key Energy Services, Inc.
Key Energy Services, Inc. engages in onshore energy production services. It operates through the following segments: U.S. Rig Services, Fluid Management Services, Coiled Tubing Services, Fishing and Rental Services, International, and Functional Support. The U.S. Rig Services segment includes the completion of newly drilled wells, workover and recompletion of existing oil and natural gas wells, well maintenance, and the plugging and abandonment of wells. The Fluid Management Services segment involves in providing transportation and well-site storage services for fluids utilized in connection with drilling, completions, workover, and maintenance activities. The Coiled Tubing Services segment offers use of a continuous metal pipe spooled onto a large reel which is then deployed into oil and natural gas wells. The Fishing and Rental Services segment includes fishing services and rental equipment designed for use in providing onshore and offshore drilling and workover services. The International segment covers operations in Mexico and Russia. The Functional Support segment comprises of unallocated overhead costs associated with sales, safety, and administrative support for each of reporting segments. The company was founded on April 1977 and is headquartered in Houston, TX.
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