31 March 2009

TDW: Look Ahead to March 2009 Quarterly Results

The GCFR Overall Gauge of Tidewater Inc. (NYSE: TDW) increased from 34 to 56 points of the 100 possible points in the December 2008 quarter, which was the third of company's fiscal 2009.  Our analysis report explained in some detail how this score was attained.  (Recent tweaks to our gauges bumped up Tidewater's current score by two points to 58.)

We have now modeled Tidewater's Income Statement for the March 2009 quarter.  The intent of this exercise was to produce a baseline for identifying any deviations, positive or negative, in the actual data that the company will announce in early May.  GCFR estimates are derived from trends in the historical financial results and guidance provided by company management.

First, we present some background information.

Tidewater Inc. owns 431 vessels, the world’s largest fleet of vessels serving the global offshore energy industry.   Headquartered in New Orleans, the company has spread far beyond its Gulf of Mexico origin.  Revenues generated from international operations in fiscal 2009 to date were 87 percent of total Revenues. 

Global economic weakness has reduced demand for crude oil and natural gas.  Lower energy prices will lead to less production in expensive offshore areas, and this will diminish the need for maritime support services.   A greater number of idle vessels, and reduced lease rates for those that remain active, would presumably lower the market value of Tidewater's fleet.   However, if the effects are localized, Tidewater can move its vessels from slower to busier regions.

Tidewater is substantially expanding and modernizing its fleet with annual investments between $300 million and $500 million.  As of 31 December 2008,  Tidewater is obligated to purchase 56 new vessels at a total cost of about $1.1 billion.  Delivery of these vessels will take place between now and July 2012.  In the current economic environment, this is somewhat risky.   David Phillips (a/k/a the 10-Q Detective, which we highly recommend) has asked whether Tidewater would be able to find alternative funding sources to meet its capital commitments if Cash Flow from Operations falls short of the company's expectations.

Despite large capital expenditures, Tidewater management was optimistic enough back in May 2008 about cash flows to raise the dividend by 67 percent.  In addition, the company's board authorized $200 million of share repurchases.  However, the most recent 10-Q reports that none of $200 million has, as yet, been spent.  Tidewater is holding onto cash "[d]ue to the distress in the capital and liquidity markets" and to "maximize available liquidity for all investment opportunities."

There were two main reasons Tidewater's results in the December 2008 quarter caused the Overall Gauge score to jump.  The first reason was that the Growth Gauge responded positively to improvements in Revenue, Cash Flow, and Net Income.  Revenue in the quarter was 15.3 percent greater than in the year-earlier period.  Cash Flow from Operations was up 29 percent, and Net Income was 31 percent higher.

The second reason was that the Value Gauge heartily approved of the combination of good operating performance and a 27 percent drop in the price of Tidewater's shares during the quarter, from $55.36 to $40.27.  The Value Gauge came within one point of a perfect 25-point score.

Tidewater provides neither Revenue, nor Income, guidance.  However, cost expectations for the March quarter were discussed during the 28 January 2009 conference call with financial analysts.  The transcript from this call is, thankfully, available at SeekingAlpha.com.

Chairman and CEO Dean Taylor remarked that the company has observed "some of our customers change their attitudes towards spending."  Given that lower energy prices results in reduced cash flows for Tidewater's customers, many have become "conservative in their spending decisions."  Mr. Taylor noted that "there have been instances" when customers asked that lease rates on existing contracts be reviewed.

Revenue depends on the number and types of vessels Tidewater owns, the utilization of these vessels, and the amount Tidewater can charge (typically expressed in dollars per day) for leasing them.  The utilization rate can be negatively affected by maintenance, moving vessels between operating locations, and new vessels entering the fleet.

Our working estimate for Revenue in the March 2009 quarter is $357 million.  The estimate is especially uncertain given the weak economy and lower energy prices.  The targeted figure is 7.8 percent greater than Revenue in the March 2008 quarter, and the year-over-year Revenue growth rate would be about 10.7 percent.

Management's guidance for Vessel Operating Costs is $165 million.  We assume that the Cost of Other Marine Revenues will be about $10 million; the combination of these figures results in a forecast for Cost of Goods Sold of $175 million.  The CGS estimate is 49 percent of our $343 million Revenue estimate, equating to a Gross Margin, as we define it, of 51 percent.

Depreciation has been $30 million to $32 million per quarter for the last couple of years.  Given the number of new vessels entering the fleet, we will assume a $34 million Depreciation expense (9.5 percent of Revenue) for the March quarter. 

We will assume another $34 million for SG&A expenses.  This figure is consistent with company guidance and past results.

If our estimates hold true, Tidewater will attain an Operating Income, as we define it, of $114 million.  This would be a 17.5 percent increase over Operating Income in the year-earlier quarter.

Tidewater management didn't estimate gains on asset sales, so we will use the recent average of about $5 million.  Similarly, we assume Net Interest income will be $6 million.  These figures would lift pre-tax income to $125 million.

If the effective income tax rate is 17.5 percent, which is consistent with management's guidance for the year, Net Income will be $103 million (about $2.02 per share).  This is 21 percent above the amount earned in the March 2008 quarter.

Please note that the tabular format below, which we use for all analyses, can and often does differ in material respects from company-used formats.  A common difference is the classification of income and expenses as Operating and Non-Operating.  The standardization is simply for convenience and to facilitate cross-company comparisons.


No comments:

Post a Comment