Transocean’s Earnings Delay the Reckoning

The company was scheduled to report earnings last Friday, but instead announced a delay and a write-down of nearly $2.8 billion. On a GAAP basis, Transocean’s third quarter loss totaled $6.12 per share, or $2.22 billion, for the following items:

• Non-cash impairment of goodwill of $5.29 per share, due primarily to the decline in the market valuation of the company’s contract drilling services business
• Asset impairment of $1.91 per share on the Deepwater Floater asset group due to the deterioration of the market outlook
• Other impairment charges totaling $0.04 per share
• Offsetting benefits of $0.16 per share

The company did not refer to the fate of its 10.10% dividend yield ($0.75 per quarter), the highest among the S&P 500 index stocks.

The year-over-year decline in revenue was due primarily to lower revenue efficiency and an increase in out-of-service time, partly offset by the commencement of operations of the company’s two ultra-deepwater newbuilds, Deepwater Asgard and Deepwater Invictus.

Transocean also said that it has chosen not to proceed with the private placement of shares of Caledonia Offshore Drilling Co., a new business the company is forming to hold eight of its U.K. North Sea midwater drill rigs. The internal separation of Caledonia is “substantially complete,” according to Transocean.

For the fourth quarter the consensus estimate for EPS is $0.72 on revenues of $2.12 billion. For the full year, per-share earnings are expected to reach $4.63 on revenues of $8.99 billion. The estimates for fiscal year 2015 call for EPS of $2.68 on revenues of $8.39 billion. The shale revolution in the United States has done a lot of damage to Transocean, which had specialized in the deepwater and ultradeepwater operations that are so ferociously expensive and will be under further pressure as long as crude oil prices continue to slide.

Transocean’s shares traded up about 2.15% in Monday’s premarket session to $30.41, in a 52-week range of $27.08 to $55.74. The consensus price target for the shares was $29.00 before the report.

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