08 March 2010

TDW: Financial Gauge Analysis for the December 2009 Quarter

This post provides updated Cash Management, Growth, Profitability and Value metrics and our Financial Gauge scores for Tidewater (NYSE: TDW).  The metrics were calculated using data in Tidewater's financial reports, including the latest earnings announcement and the formal 10-Q report for the December quarter.

We have already examined the Income Statement for the three months that ended on 31 December 2009.  Tidewater earned $1.16 per diluted share in this period, which was the third quarter of Tidewater's fiscal 2010.  This result was 49 percent below the record-high $2.28 earned in the December 2008 quarter.

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.

The latest quarterly results produced the following changes to the gauge scores:
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 Management31 Dec 200930 Sep 200931 Dec 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)94.891.786.286.9
Working Capital/Revenue34.8%31.6%27.8%32.5%
Cash Conversion Cycle Time (days)90.082.567.462.0
Gauge Score (0 to 25)10101111

Tidewater's Balance Sheet remains strong, and is helping the company pay to modernize its fleet.  From the 10-Q,

"The company has $527.0 million remaining capital commitments on the 33 vessels currently under construction and the three vessel purchase commitments at December 31, 2009."

The slight downtrend in the Current Ratio is certainly not worrisome, as the present value is still substantially in excess of the 2.0 classical threshold for sufficiency. 

Long-term Debt is $275 million, and the company did not take on additional debt during the quarter.  The LTD/Equity value came down slightly because quarterly earnings helped increase Shareholder's Equity.

The increase in Days of Sales Outstanding is, perhaps, a minor concern.  This figure is determined by dividing the average Accounts Receivable over the last year by the Revenue during the year.  We would be more concerned if Accounts Receivable were increasing, but Receivables actually declined, from $331 million in December 2008 to $297 million in December 2009.  The increase in the DSO ratio is more due to lower Revenue. 

To be sure, the company is dealing with some issues involving Receivables.  In the June 2009 quarter, Tidewater recorded a provisional charge "to fully reserve" $44.8 million of receivables due from two entities in Venezuela.  The 10-Q also discusses "the uncertainty of a certain international customer" to pay $9.3 million for chartering a vessel.  The customer is not mentioned, so it isn't clear if this uncertainty is related to the seizure of Tidewater vessels in Venezuela.

Growth31 Dec 200930 Sep 200931 Dec 20085-Yr Avg
Revenue growth-9.4%-0.5%12.0%12.8%
Operating Profit growth5.7%11.6%42.5%29.1%
CFO growth-8.6%7.1%10.4%28.0%
Net Income growth-18.4%4.1%9.0%16.3%
Gauge Score (0 to 25)141114
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.

The Revenue decline has accelerated.  Revenue in the December 2009 quarter fell 20.9 percent, when compared to the year-earlier period.  Tidewater's International business, which had been relatively strong, experienced a Revenue drop of 18.4 percent. 

The utilization rate for the worldwide fleet skidded from 74.4 percent in December 2008 to 63.8 percent in December 2009.

The company has removed from active service some older vessels that are not sufficiently profitable given current demand.

Lower Revenue led to lower margins, Cash Flow from Operations, and Net Income.

Profitability31 Dec 200930 Sep 200931 Dec 20085-Yr Avg
Operating Expenses/Revenue72.7%69.4%70.0%70.9%
Free Cash Flow/Invested Capital2.2%3.1%3.4%5.4%
Accrual Ratio3.5%4.8%8.7%3.6%
Gauge Score (0 to 25)69510

The Operating Expense ratio increased because Revenue fell and utilization rates declined.  The current value for this ratio is the highest since 2006.

ROIC also lost some ground, after holding up relatively well earlier in the year. 

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

Value31 Dec 200930 Sep 200931 Dec 20085-Yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)8172414
Share Price ($)$47.95$47.09$40.27-

Although not necessarily high on an absolute scale, or even when judged by the 5-year averages, the P/E and other valuation metrics are higher now than they were a year ago.  The share price rallied while sales and earnings declined.

Overall31 Dec 200930 Sep 200931 Dec 20085-Yr Avg
Gauge Score (0 to 100)28475849

The results of the December quarter caused the Growth, Profitability and Value gauges to all decline.  The fall was steepest for the double-weighted Value gauge, which was responsible for most of the Overall gauge's drop.

The long-term strength of its Balance Sheet has helped Tidewater modernize its fleet, an activity which is continuing.  If industry conditions rebound, Tidewater will be well positioned to exploit them.  However, if industry conditions deteriorate further, the company might want to reconsider its capital spending options.

Full disclosure: Long TDW at time of writing.

No comments:

Post a Comment