Cameron International Corp. (CAM:US), under pressure from Jana Partners LLC to speed asset sales, led the oilfield service sector after its fourth-quarter earnings beat analysts’ estimates.
On the other end of the scale, Weatherford International Ltd. (WFT:US) was the second-worst performer in the Philadelphia Oil Service Sector Index, falling as much as 4.6 percent after announcing job cuts and lowering profit guidance.
The global oilfield services and equipment sector has been hurt by the slowing of deep-water rig contractors. Noble Corp. said last week it’s expecting a “pause in the cycle” of deep-water drilling after years of growth fueled by oil and natural gas discoveries.
After “massively” eroding investor confidence last year, Cameron is just now gaining traction while Weatherford still has a way to go, said Scott Gruber, an analyst at Sanford Bernstein in New York. Both are embarking on asset sales and looking for improved operating profit margins to regain trust.
“Cameron is much further through this process,” said Gruber, who rates Cameron shares a buy, Weatherford the equivalent of a hold, and owns neither. “Another guide down for Weatherford means we’re still just in the early innings of that process.”
Houston-based Cameron, the second-largest maker of oilfield equipment in the U.S., rose 5.6 percent (CAM:US) to $59.88 at 1:23 p.m. in New York after earlier climbing as much as 6.5 percent, the biggest intraday rise since July 2012. Weatherford, based in Geneva, dropped 2.6 percent (WFT:US) to $13.46, rebounding after shares fell as much as 4.6 percent, the biggest decline in two months.
The sector index has fallen 7.5 percent the last three months, compared to a rise of about 2 percent for the Standard & Poor’s 500 in the same period. The Philadelphia index of 15 service companies rose 28 percent in 2013.
After missing estimates for three of the past four quarters before today, Cameron today reported fourth-quarter earnings of $1 per share, excluding certain items. The company was expected to earn 96 cents, the average of 29 analysts’ estimates compiled by Bloomberg.
Jana Partners, the $8 billion activist hedge-fund firm run by Barry Rosenstein, took a stake in Cameron and urged the company to make additional asset sales and share repurchases.
“We believe there remains still more portfolio pruning to be done and that asset sales, balance sheet capacity and future free cash flow provide considerable powder for even more share repurchases,” the firm wrote in its fourth-quarter letter, a copy of which was obtained by Bloomberg News.
Cameron said Jan. 20 it agreed to sell its reciprocating compression unit to General Electric Co. for $550 million in cash and will consider strategic alternatives for its centrifugal compression business, which had revenue of $365 million in 2012. Both businesses are part of Cameron’s smallest of three segments, which sells gear that among other things help separate air, oil and natural gas.
Cameron is feeling the offshore slow down through the sales and profit margins of its deep-water equipment installed on the sea floor. Margins for that drilling and production systems segment are expected to increase only “nominally” this year and grow to 20 percent next year, the company said today.
Weatherford said today fourth-quarter earnings are expected to be in the range of 5 cents to 8 cents, while the average of 25 analyst estimates compiled by Bloomberg is 25 cents. The company had said Nov. 5 it expected earnings in the range of 27 cents to 29 cents.
The world’s fourth-largest oilfield services provider has missed analyst estimates in 10 of the past 12 quarterly periods, according to data compiled by Bloomberg.
“At this point it is very difficult to rely on the guidance, and we will likely move to the low end of the range,” Brian Uhlmer, an analyst at Global Hunter Securities in Houston, wrote today in a note to investors. “We have stayed neutral on this name for years and do not see any reason to change our stance.”
Weatherford also said it plans to cut 7,000 workers in the first half of this year and is evaluating other operations that are unprofitable and draining its cash flow.
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