15 December 2007

TDW: Look Ahead to December 2007 Results

It has been a roller coaster year for Tidewater shareholders. The price per share increased linearly from $45 in early January to $80 in July, before returning to its starting point, or nearly so, with the stomach-turning plunges familiar to amusement park patrons.

The drop for this owner of "the world's largest fleet of vessels serving the global offshore energy industry" occurred despite crude oil prices rising to historic levels.

When we analyzed the company's September quarter results, after the first stock price nosedive, we found that our Overall Gauge for Tidewater had declined from lofty levels to a modest 35 out of 100 possible points. We attributed the weaker score to slowing growth and higher costs.

The Overall gauge score peaked in late 2006, anticipating the stock price's rise and its subsequent fall. Revenue started to surge at Tidewater in late 2004, after a couple years of flat (or declining) performance. The maximum growth rate was seen in June 2006, when quarterly revenues were 40 percent greater than the year-earlier period. Year-over-year revenue growth peaked soon thereafter at 34 percent.

By comparison, year-over-year revenue growth through September 2007 was down to 18 percent.

Tidewater's revenue is dependent on the number of vessels they own, the average vessel utilization, and lease charges (typically expressed in dollars per day). The utilization rate has been the weakest of the three components recently. Based on extrapolations, our forecast for Revenue in the December 2007 quarter is $326 million, which is 13 percent greater than Revenue in December 2006. If achieved, year-over-year Revenue growth would be 15 percent.

Tidewater's Gross Margin increased from about 35 percent of revenue in 2004 to almost 55 percent at the end of 2006. It fell back to 49 percent in the September quarter. One factor that increased costs (and reduced Revenues) was "regulatory drydocking." (With Tidewater deploying larger vessels, maintenance activities are making quarterly results more erratic.) Tidewater has already indicated that vessel operating costs in the December quarter will increase as new vessels are added to the fleet and other vessels undergo maintenance. We will look for the Gross Margin in the December quarter to remain at 49 percent. Given our revenue estimate, we're looking for a Cost of Goods Sold (i.e., vessel operating costs plus costs of other marine revenues) of 0.51* $326 million = $166 million.

Depreciation has been about 10 percent of revenue in recent quarters. This would equate to 0.1 * $326 million = $33 million for December. Similarly, if trends continue, SG&A expense should also be about 10 percent of revenue, or another $33 million.

As a result, operating income of $95 million seems attainable. If we guess an additional $10 million in income from asset sales and interest, and a 19 percent income tax rate, our estimate for net income become $85 million ($1.53 per share). This is below for the $93 million earned in the December 2006 quarter. However, with a net income of $6.20 per share over the four quarters, the Price/Earnings ratio would be mere 8.7 using Friday's closing stock price.


Dec 2007
Dec 2006
Op expenses

CGS (166)

Depreciation (33)

SG&A (33)
Operating Income
Other income

Asset sales

Interest, etc.
Pretax income

Income tax

Net Income


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