10 November 2009

TDW: Financial Gauge Analysis for the September 2009 Quarter

In a previous article, we examined Tidewater's (NYSE: TDW) Income Statement for the September quarter and compared the figures to our "look-ahead" estimates.  Earnings in this period, the second quarter of fiscal 2010, rose from $1.85 to $1.90 per share.  Earnings would have been $0.66 lower, or a disappointing $1.24, without the benefit of a $34.4 million favorable resolution to tax litigation.

Using the financial statements in the earnings announcement and the more detailed 10-Q, we have now updated a set of Cash Management, Growth, Profitability and Value metrics. This post reports on the metrics and the associated financial gauge scores.

Tidewater owns the world's largest fleet of vessels serving the global offshore energy industry.   Some background information about Tidewater and the business environment in which it is currently operating can be found in the look-ahead.

In summary, Tidewater's latest quarterly results produced the following changes to the gauge scores:
  • Overall: 51 of 100 (down from 59)
The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify the figures and calculate any other metrics they find meaningful.  The SEC's web site is great source of data.

Cash ManagementSep 2009Jun 2009Sep 20085-Yr Avg
Current Ratio2.
Debt/CFO (years)
Inventory/CGS (days)N/AN/AN/AN/A
Finished Goods/InventoryN/AN/AN/AN/A
Days of Sales Outstanding (days)92.388.486.887.1
Working Capital/Invested Capital18.5%21.3%16.0%19.9%
Cash Conversion Cycle Time (days)
Gauge Score (0 to 25)14141213

The strength of Tidewater's Balance Sheet is evident from the ratios above and is helping the company pay to modernize its fleetIt also provides a cushion to help the company overcome weak periods in the cyclic energy industry and challenges such as those in Venezuela. 

The 10-Q indicates that Tidewater had $554 million of outstanding obligations for 38 vessels under construction as of 30 September 2009 and scheduled for delivery at various times through July 2012.  The company's Current Assets exceed Current Liabilities by $439 million.

The increase in Days of Sales Outstanding seems related to $44.8 million in outstanding receivables related to the seizure of Tidewater vessels in Venezuela.

GrowthSep 2009Jun 2009Sep 20085-Yr Avg
Revenue growth-0.5%5.6%10.5%15.6%
Operating Profit growth11.6%21.1%58.6%45.6%
CFO growth7.1%10.1%5.7%33.3%
Net Income growth4.1%6.0%0.0%32.1%
Gauge Score (0 to 25)46515
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. but not exclusively so, trimmed Tidewater's Revenue growth.  The loss of business in Venezuela didn't help.

Recent earnings and cash flow growth rates would be more robust if we ignored (but were not) the $48.6 million charge related to the seizures in Venezuela.

ProfitabilitySep 2009Jun 2009Sep 20085-Yr Avg
Operating Expenses/Revenue69.4%67.8%70.8%71.4%
Free Cash Flow/Invested Capital3.1%3.2%3.2%5.0%
Accrual Ratio4.8%5.4%8.5%3.5%
Gauge Score (0 to 25)99510

With Revenue down in the latest quarter, the Operating expense ratio rose a little.  However, it remained slightly below last year's figure.

ROIC also lost a little ground recently, but it seems to be holding up well. 

Free Cash Flow is under pressure because of high capital expenditures associated with the fleet expansion and modernization.

ValueSep 2009Jun 2009Sep 20085-Yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)17211514

The figures in the table above are based on the $47.09 share price on 30 September, which is our standard practice.  The shares had increased 9.8 percent during the September quarter and 15 percent during the June quarter; however, much of the rise was wiped away during October.  The share price is now back up to $45. 

OverallSep 2009Jun 2009Sep 20085-Yr Avg
Gauge Score (0 to 100)51594250

The Growth and Value gauges dropped by small amounts in the September quarter, and the Cash Management and Profitability score were unchanged.  The Value gauge was reacting in a contrary manner to an earlier share price rise

Tidewater is coping with the reduced demand for energy services, an industry-wide phenomenon.  Cost cutting has helped.

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, could curb the company's cash flows and reduce the value of older vessels the company might want to sell. 

Full disclosure: Long TDW at time of writing.

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