05 June 2010

TDW: Financial Gauge Analysis for the March 2010 Quarter

Tidewater (NYSE: TDW) earned $1.10 per diluted share on a GAAP basis in fiscal 2010's fourth quarter, which ended 31 March.  Earnings per share were 48 percent less than the $2.13 Tidewater made in the same quarter of 2009.

In our earlier review of Tidewater's Income Statement, we compared the actual results to our "look-ahead" estimates.  Reported earnings were $0.02 more than the $1.08 per share we had forecast.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value for Tidewater.  This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using data from Tidewater's current and historical financial statements, including the latest formal 10-K report.

Tidewater, Inc., 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

The company still works in its home region, and a Tidewater vessel was on the scene at the Deepwater Horizon when the rig failed tragically.  However, the lion's share of Tidewater's business has been outside the U.S. for many years.  International operations were responsible for 92 percent of the company's vessel revenue in fiscal 2010.

Additional background information about Tidewater can be found in the look-ahead.

In summary, Tidewater's latest quarterly results produced the following changes to the GCFR 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 these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

Cash Management31 Mar 201031 Dec 200931 Mar 20095-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)100.294.886.087.2
Working Capital/Revenue37.1%34.8%28.3%33.5%
Cash Conversion Cycle Time (days)
Gauge Score (0 to 25)9101010

Tidewater's Balance Sheet remains strong.  Long-term debt of $275 million, plus $25 million due currently, is relatively modest given the company's capital structure.  Working Capital of $384 million, although down from a year ago, appears more than ample because the Current Ratio is substantially in excess of the 2.0 classical threshold.

Tidewater might seem to have more Working Capital than necessary.  However, this  can only be prudent given the energy industry's cyclical downturn and Tidewater's continuing capital commitments to fund its fleet modernization.  The 10-K reports that Tidewater, as of 31 March 2010, was committed to spend $470.5 million to acquire or build 36 vessels, with deliveries scheduled through July 2012.  (The company has already invested $271.9 million for the vessels under construction.)

The increase in Days of Sales Outstanding is, perhaps, a  concern that customers have slowed their payments to Tidewater.  The 10-K mentions "the uncertainty of a certain customer to make payment of vessel charter hire ... ."    (It isn't clear if this uncertainty is related to the seizure of Tidewater vessels in Venezuela.)  It may be comforting that Accounts Receivable declined, from $329 million in March 2009 to $312 million in March 2010.  However, Revenue fell more sharply, which would normally lead to a comparable drop in Receivables.

Growth31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
Revenue growth-16.0%-9.4%9.5%8.9%
Operating Profit growth-4.7%5.7%27.9%12.4%
CFO growth-37.3%-9.1%7.0%15.2%
Net Income growth-36.2%-18.4%16.7%11.8%
Gauge Score (0 to 25)011114
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.

A 24-percent decline in Revenue in the March 2010 quarter resulted in a year-over-year fall of 16 percent.  Over the fiscal year, International vessel revenues fell 13.3 percent and U.S. vessel revenues plunged 39 percent.

The average vessel day rate rose 2 percent in fiscal 2010, from $12,151 the year before to $12,399.   However, this small rise was not enough to counteract the decline in the average vessel utilization rate from 73.9 percent to 65.9 percent. 

While Revenue was falling, the company's total Assets rose 7.1 percent during the year ending in March.  Revenue/Assets fell accordingly.

Both Cash Flow from Operations and reported Net Income in fiscal 2010 were the lowest they had been since fiscal 2006. 

Profitability31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
Operating Expenses/Revenue78.1%72.7%68.5%71.1%
Free Cash Flow/Invested Capital-5.1%2.1%2.4%4.5%
Accrual Ratio7.0%3.6%10.3%4.0%
Gauge Score (0 to 25)46710

The operating margin fell sharply because expenses could not be cut at the same pace as Revenue.  Not surprisingly, earnings and cash flow returns on Invested Capital were adversely affected.

Recall that Free Cash Flow accounts for the capital expenditures associated with the fleet expansion and modernization.

Value31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)292514
Share Price ($)$47.27$47.95$37.13-

Lower Revenue, Sales, and Cash Flow, when compared to year-earlier amounts, accompanied by a higher share price (much of which has been given back recently), decimated the Value gauge score.  Nevertheless, the valuation metrics are not inconsistent with their five-year averages.

Declining earnings makes the PEG ratio immaterial.

At a current share price near $40, the P/E drops to 8.0, Price/Sales edges down to 1.8, and EV/CFO is reduced to 6.6. 

Overall31 Mar 201031 Dec 200931 Mar 20095-Yr Avg
Gauge Score (0 to 100)15296149

The results of the March quarter caused the Growth, Profitability and Value gauges to all decline to very weak scores.  This weakness is reflected in the Overall gauge.

The long-term strength of its Balance Sheet has helped Tidewater modernize its fleet, an activity which is continuing.   The company will be ready to exploit the situation when offshore activity picks up again.  However, worldwide economic turmoil and the Gulf disaster make the timing for the recovery uncertain.

The falling share price since the quarter ended should enable the Value gauge to rebound most strongly when industry conditions stabilize. 

Full disclosure: Long TDW at time of writing.

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