Weatherford International continues to streamline its operations, with significant job cuts planned.
The Birmingham, Alabama-based wealth manager says that the oil company continues to divest assets and reduce its net debt using money raised from the sale of assets. However, analysts Stephen D. Gengaro and Ivan Suleiman would like to see increased cash flow from operations. For its part Weatherford International is working towards further cost savings and a reduction in capital spending at a time when the oil sector as a whole is suffering.
Weatherford International reducing costs
Cost cutting efforts are to be led by a reduction in headcount of 5,000 jobs, which should lead to annual savings of $350 million. Over 85% of those jobs will be taken from the Western Hemisphere. Cost cutting in 2015 follows on from $500 million of annualized pre-tax cost savings made in the previous year.
Another cost cutting initiative is a procurement savings program which is expected to save $300 million over the next 2 years. The 2014-2015 cost cutting programs should see the company make $1.15 billion in cost savings, which is equal to around $1.10 per share after taxes.
Weatherford International’s net debt decreased to just short of $1.1 billion sequentially, largely thanks to $984 million in cash raised by the sale of assets. Total net debt now stands at $7.05 billion. Debt reduction remains a priority for the company, and the cost cutting programs mentioned previously are expected help achieve this aim given market conditions, a reduction in capital spending and the desire to generate cash in the coming year.
Missed targets
Fourth quarter EPS was reported at $0.32 despite missing operating income targets due to a slowing of activity and the weakening of the Russian ruble. Total revenue also fell by 3.9%, and was 5.0% below the Sterne Agee forecast. The North America region saw a 4.2% revenue miss due to less December activity than expected, and the Europe/Sub-Sahara Africa/Russia region was affected by a decrease in North Sea activity, as well as the struggles of the Russian ruble. The lone positive was Latin America, which saw revenues rise 11.3% sequentially, and 5.6% over the analyst estimate.
Operating margins were also lower than expected due to the aforementioned factors, with operating income missing the Sterne Agee estimate by 9.5%, a 9.1% decrease sequentially.
Sterne Agee has estimated EPS at $0.80 and $1.20 in 2015 and 2016 respectively, with a price target of $14.
