04 August 2009

TDW: Financial Gauge Analysis for the June 2009 Quarter

In an earlier post, we examined Tidewater's (NYSE: TDW) Income Statement for the June quarter and compared the figures to our "look-ahead" estimates.  Earnings in this period, the first quarter of fiscal 2010, fell from $1.64 to $0.86 per share.  Earnings were about $1.80 per share excluding a charge related to the seizure of Tidewater vessels in Venezuela.

We have since mined the financial statements in Tidewater's 10-Q to update the metrics we use to assess Cash Management, Growth, Profitability and Value.  This post reports on these metrics and the Financial Gauge scores.

In summary, Tidewater's latest GCFR gauge scores are as follows:
  • Overall: 59 of 100 (down from 67)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.

Cash ManagementJun 2009Mar 2009Jun 20085-Yr Avg
Current Ratio3.
Debt/CFO (years)
Inventory/CGS (days)N/AN/AN/AN/A
Finished Goods/InventoryN/AN/AN/AN/A
Days of Sales Outstanding (days)88.483.685.687.1
Working Capital/Invested Capital21.3%18.8%17.3%19.3%
Cash Conversion Cycle Time (days)75.056.764.161.2
Gauge Score (0 to 25)14171213

Tidewater's strong Balance Sheet, which is evident from the first few ratios above, should help the company modernize its fleet.  It also provides a cushion to help the company overcome weak periods in the cyclic energy industry and challenges such as those in Venezuela.  Tidewater will need to spend another $572 million to fulfill commitments on 45 new vessels, as part of a $965 million program.  These vessels will be delivered in stages through July 2012.

GrowthJun 2009Mar 2009Jun 20085-Yr Avg
Revenue growth5.6%9.5%12.4%18.0%
Operating Profit growth21.1%27.9%69.1%55.9%
CFO growth10.1%7.5%0.5%40.3%
Net Income growth6.0%16.7%-7.2%57.1%
Gauge Score (0 to 25)611515
Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.
The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.

Reduced offshore activity, especially in the U.S., trimmed Tidewater's Revenue growth.

The earnings and cash flow growth rates after the June 2009 quarter would be more robust (and the Growth score would be 4 points higher) if we ignored the $50 million charge.

ProfitabilityJun 2009Mar 2009Jun 20085-Yr Avg
Operating Expenses/Revenue67.8%68.5%70.7%71.9%
Free Cash Flow/Invested Capital3.2%2.5%4.4%5.2%
Accrual Ratio5.4%10.2%6.7%3.2%
Gauge Score (0 to 25)97510

It's good to see the decrease in Operating Expenses, and the ROIC has held up well.  However, Free Cash Flow has suffered, in part because of high capital expenditures associated with the fleet expansion and modernization.

ValueJun 2009Mar 2009Jun 20085-Yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)21251013
Tidewater's share price increased 15.5 percent during the June quarter, from $37.13 to $42.87.  This rise, combined with the hit to earnings in the latest quarter, put an end to Tidewater's perfect 25-point Value gauge score.

Nevertheless, the valuation ratios above are still very attractive. The valuation ratios can easily be compared with other companies in the Shipping industry.

OverallJun 2009Mar 2009Jun 20085-Yr Avg
Gauge Score (0 to 100)59673549

Tidewater is coping with the reduced demand for energy services, an industry-wide phenomenon.  Cost cutting has helped, but the asset expropriation that led to an operating charge of almost $50 million was the dominant feature of the June quarter and had the greatest effect on the gauge scores.

Management might face some tough questions about whether to scale back the fleet modernization if demand doesn't quickly resume its earlier upward trajectory.  Continued weakness, as manifested in lower utilization and day rates, will curb the company's cash flows and also reduce the value of older vessels the company might want to sell. 

In July 2009, Tidewater and its lenders amended the company's revolving credit facility, increasing the amount to $450.0 million and extending the maturity date to July 2012.

Full disclosure: Long TDW at time of writing.

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