Tesco (TESO) Lowers Q4 Outlook

Tesco (NASDAQ: TESO) is providing an updated outlook for the financial results for the fourth quarter of 2014.

The rapid decline in energy prices has impacted drilling activity and consequently reduced our customer's planned capital spending. TESCO has experienced the impact of these developments during the fourth quarter and that has reduced expectations for both revenue and earnings this quarter.

These developments have affected the demand for TESCO's capital equipment as some customers have requested to defer shipment of several top drives and Casing Drilling Systems (CDS) units from the fourth quarter of 2014 to 2015. In addition, we have received some order cancellations that will impact the fourth quarter and 2015. We now expect to ship approximately 25-27 top drives in the fourth quarter. We plan to book approximately 15-17 new top drives during the fourth quarter before cancellations.

We have also experienced tubular service activity declines, primarily in North America as well as some temporary activity disruptions in Mexico and Argentina. Russia remains slow as its economic conditions continue to decline. We believe that customers in other international markets served by TESCO will base their decisions on longer term factors and their response to current market conditions is expected to be more measured.

As a result, we do not expect revenues in the fourth quarter to improve sequentially and they are now expected to be closer to the first half run rate. Profitability will also be adversely impacted in the fourth quarter as revenue declines faster than costs. In addition, we expect to incur certain non-recurring charges involving the recent Russian currency devaluation, warranty reserves and costs associated with executive retirement. These particular non-recurring charges will impact net earnings by approximately $0.08 - $0.10 per diluted share.

As a net result of the events above, the Company currently expects that its fourth quarter 2014 reported net earnings, excluding the non-recurring charges, will be in the range of $0.10 - $0.15 per diluted share.

*** The Street sees Q4 EPS of $0.32.

Fernando Assing, TESCO's Chief Executive Officer, commented, "We will use this market condition as an opportunity to lower our cost structure and streamline our organization. This will lower costs in 2015 and will improve our leverage when the market recovers. We are well positioned to deal effectively with the uncertain times and our priority remains cash generation and preservation until such conditions improve. Our strong balance sheet provides stability and flexibility and our technologies, safety and quality will continue to provide the differentiation required in the market place. Our goal is to improve TESCO's performance over the long run and the optimizations required will allow us to be better positioned to achieve that."

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