Tesco (TESO) Misses Q1 EPS by 11c

Tesco (NASDAQ: TESO) reported Q1 EPS of ($0.46), $0.11 worse than the analyst estimate of ($0.35). Revenue for the quarter came in at $35.5 million versus the consensus estimate of $42.86 million.

Outlook

The global markets will continue to be challenging in the second quarter as the first quarter rig count declines will be compounded with the additional rig count declines expected in that quarter.

Products revenue is expected to increase sequentially between 15% and 20% as we ship 3-5 top drives in addition to the offshore catwalk and the offshore pipe handling package. Product rentals and AMSS results are expected to continue to trend down as those follow the rig counts. Products adjusted operating profit is expected to increase over the first quarter primarily due to the effect of the non-recurring new products shipping activity within the quarter.

Tubular Services revenue is expected to be down sequentially between 25% and 30%. This decline is being driven primarily by lower land drilling activity in the US along with some market share decline due to not bidding in some cases where pricing is below breakeven EBITDA. We will not be performing work temporarily on two contracted rigs in the Gulf of Mexico due to drilling schedules. In addition, we do not have work scheduled in the North Sea as all activity under our multi-platform contract has been indefinitely postponed. However, decremental margins are expected to be similar to the first quarter as we see the benefits of prior restructuring and cost controls.

Corporate and R&E expenses are expected to decrease slightly in the second quarter. Depreciation expense should decrease to approximately $7.5 million per quarter after adjusting for the impairment charge in the first quarter.

These factors should cause adjusted EBITDA to be flat to slightly down over first quarter levels. Cash is expected to be slightly down sequentially as inventory reduction during the second quarter driven by the higher Product sales partially offsets EBITDA losses. Capital spending is expected to remain in the $1-$2 million range per quarter.

For earnings history and earnings-related data on Tesco (TESO) click here.

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