06 April 2008

TDW: Look Ahead to 2008 First Quarter (4Q Fiscal 2008) Results

Tidewater (TDW), a long-time GCFR favorite, owns "the world's largest fleet of vessels serving the global offshore energy industry." Our financial analysis of the December 2007 quarter (the third period of the company's fiscal year, which ended on 31 March 2008) noted that Revenue Growth had slowed despite crude oil prices rising to historic levels. Vessel utilization rates were down, especially in the U.S., and per-day lease rates had also declined in the U.S. Operating Expenses as a percentage of Revenue had edged up, although they were still quite low relative to historic norms. Less substantial gains on Asset Sales were also a factor in limiting Net Income growth to only 5 percent (comparing the four quarters in calendar year 2007 to the four quarters in CY 2006) from almost 50 percent (CY 2006 to CY 2005). A lower income tax rate, due to a greater proportion of international operations, kept the earnings decline from being even more severe.

These factors resulted in an Overall Gauge score of a modest 41 points, compared to scores in the 60's in 2006. The Value gauge was the strongest of our measures, which might be a good sign. Before we get too worked up about the score, we have to note the the Overall Gauge score, as shown in the left, has not been a reliable predictor of Tidewater share price movements in the following year. (The correlations are slightly better at other time scales.)

Tidewater management reiterated at a recent conference call for industry analysts that they provide neither Revenue, nor Income, guidance. Some limited information about cost expectations is disclosed.

Tidewater's Revenue is dependent on the number and types 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, we would guess that Tidewater will announce later this month that Revenue in the March 2008 quarter was around $320 million. This figure is 9 percent greater than Revenue in the March 2007 quarter and it would result in year-over-year Revenue growth of 12 percent.

Tidewater's Gross Margin increased from 35 percent of Revenue in 2004 to almost 55 percent at the end of 2006. It then fell back to between 49 and 53 percent. One factor that increased costs (and reduced Revenues) was "regulatory drydocking." (With Tidewater deploying larger vessels, maintenance activities are making quarterly results more erratic.) We will look for a 51 percent Gross Margin in the March quarter. 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 (1 - 0.51) * $320 million = $157 million.

Depreciation has been about 10 percent of Revenue in recent quarters. This would equate to 0.1 * $320 million = $32 million for the March 2008 quarter. Similarly, if trends continue, the SG&A expense should also be about 10 percent of Revenue, or another $32 million.

As a result, Operating Income of $99 million seems attainable. If we guess an additional $10 million in income from Asset Sales and Interest, and an 18 percent income tax rate, our estimate for Net Income becomes $89 million ($1.66 per share). This is just slightly above the $87.6 million earned in the March 2007 quarter.


March 2008
March 2007
Op expenses

CGS (157)

Depreciation (32)

SG&A (32)
Operating Income
Other income

Asset sales

Interest, etc.
Pretax income

Income tax

Net Income


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