03 February 2010

TDW: Income Statement Analysis for the December 2009 Quarter

Tidewater (NYSE: TDW) earned $1.16 per diluted share in the quarter that ended 31 December 2009, which was the third quarter of Tidewater's fiscal 2010.  This result was 49 percent less profitable than the record-high $2.28 earned in the December 2008 quarter

This post examines Tidewater's Income Statement for the latest quarter and compares the entries on each line to our "look-ahead" estimates.  Our target for Net Income was $1.18 per share, $0.02 more than the reported amount.

The principal sources for the income statement analysis were the earnings announcement, the post-release conference call (transcript available from Seeking Alpha), and the formal 10-Q report.

In a second article, we will report Tidewater's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, GrowthProfitability and Value.

Tidewater owns the world's largest fleet of vessels serving the global offshore energy industry.  Headquartered in New Orleans for more than 50 years, Tidewater first serviced drillers in the Gulf of Mexico.  Additional background information about Tidewater and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

The $286.5 million of Revenue in the December 2009 quarter was 20.9 percent less than the $362.3 million in the year-earlier period.  The latest result was just slightly worse than the 20.0-percent decline we had estimated.

Tidewater's International business generated 18.4 percent less Revenue than in the same period of the previous year.  U.S. Revenue skidded 46.3 percent.  Other marine revenues dropped 8.8 percent.

The utilization rate for the worldwide fleet dropped more than 10 percent, from 74.4 percent to 63.8 percent, from December 2008 to December 2009.  The utilization rate of the U.S.-based vessels slumped to only 39.5 percent.

The number of deepwater vessels owned and operated worldwide (U.S. and International) by Tidewater increased from 39 to 49.  The utilization rate for these vessels declined from 87.5 percent to 79.1 percent, and the average vessel "day rate" slipped 3.3 percent.  Nevertheless, the greater number of vessels enabled Revenue from this category to increase 9.6 percent.

Other categories fared less well.  "Towing-supply/supply" vessels brought in 29.2 percent less Revenue than in the same quarter of the previous year.  Utilization declined from 72.7 percent to 61.0 percent, and the average vessel "day rate" decreased 6.5 percent.  The company reduced the size of the towing-supply portion of the fleet from 256 to 231.

Of the various costs and expenses reported by Tidewater, we group "Vessel operating costs" and "Costs of other marine revenues" and call the combination Cost of Goods Sold.  In the December quarter, CGS was 55.4 percent of Revenue.  Therefore, the company achieved a Gross Margin of 44.6 percent.  Although this margin was down from 52.3 percent in the December 2008 quarter, it almost matched our 44.8-percent expectation.

Vessels operating costs were 8.1 percent less than last year; however, they increased as percent of Revenue.

Depreciation expenses rose $560 thousand and were just slightly greater than our $32 million estimate.

Sales, General, and Administrative expenses increased about $2 million, but the actual figure was a bit less than our estimate. 

The various operating items mentioned above combined to produce Operating Income, as we define it, of $61 million.  This was 51 percent less than in the December 2008 quarter.  The decrease can be attributed mostly to lower Revenue and lower margins.   Operating Income fell short of our $63 million estimate by 3 percent.

It's very common for Tidewater to replace older vessels with new ones.  In the most recent quarter, disposing of assets led to a $5 million gain.   Tidewater treats this type of gain as an operating item.  The reported figure wasn't too far off of our $6 million estimate, which was based on historical averages.  Tidewater sold 4 anchor handling towing supply vessels, 3 platform supply vessels, 3 crew boats, and one utility vessel in the December 2009 quarter.

Miscellaneous non-operating income fell to $4.3 million from $8.8 million in the previous December quarter.  Most of the decline was due to a smaller foreign exchange gain, but interest income was down and interest costs were also up.  Nevertheless, the net amount was within $1 million of the value we expected.

The effective income tax rate of 15.4 percent was less than the 18 percent we had assumed.  Income from less-taxed International operations made up a greater proportion of overall pretax profits.

Net Income of $60 million ($1.16 per share) was 49 percent less than in the December 2008 quarter.  Earnings were just $1 million ($0.02 per share) less than our targets.

In summary, Tidewater's Revenue in the third quarter of fiscal 2010 was about 21 percent less than in the same period of the previous year.  Although costs were trimmed, lower Revenue led to lower margins and much lower Net Income.  These results were not surprising given the industry conditions.   As the CFO said during the conference call, "the quarter played out generally within the band of guidance that was provided in October."

Full disclosure: Long TDW at time of writing.

No comments:

Post a Comment