Summary
- Helmerich & Payne, Inc. announced a fiscal first quarter 2023 net income of $97.15 million, or $0.91 per diluted share.
- On December 9, 2022, the Board of Directors of the Company declared a quarterly base cash dividend of $0.25 per share and a supplemental cash dividend of $0.235 per share.
- I recommend buying HP between $47 and $48.1 with possible lower support at $45.2.
Introduction
The Tulsa, Oklahoma-based Helmerich & Payne, Inc. (HP) released its fiscal first quarter 2023 results on January 30, 2023.
This article is an update of my preceding article, published on November 20, 2022. I have followed HP on Seeking Alpha since September 2014.
1 - Fiscal 1Q23 Results Snapshot
Helmerich & Payne, Inc. announced a fiscal first quarter 2023 net income of $97.15 million, or $0.91 per diluted share, compared to a loss of $0.48 per diluted share in the same quarter a year ago. This quarter, revenues were $719.64 million, up significantly from $409.78 million last year.
President and CEO John Lindsay said in the press release:
This recent quarter marks a milestone in achieving that revenue per day goal, and we are making strong progress towards the direct margin goal. The Company has made significant headway in just a year which has generated considerable shareholder value. Our first fiscal quarter results of 2023 show another strong sequential improvement in our financial performance and the continuation of momentum established in fiscal 2022.
Net cash provided by operating activities was $185.38 million for the first quarter of the fiscal year 2023 compared to $117.27 million in the prior quarter.
Below are the highlights of FY22:
H&P's North America Solutions segment left the fiscal first quarter with 180 active rigs in September, up from 176 active rigs in fiscal 4Q.
2 - Investment Thesis
Helmerich & Payne released results beating analysts' expectations this quarter. The onshore drilling environment has dramatically improved over the past three quarters. Thus, I consider HP a good long-term investment with a sound balance sheet and excellent growth prospects.
However, the risk of recession in 2023 weighs heavily on the industry, and we must be cautious here. The FED is expected to hike by 25 points this week, even if the recent CPI shows that inflation is decreasing.
On the other hand, the market for Energy services is booming, according to Rystad.
Together with oilfield services, this expansion into other energy areas could provide a $1 trillion market for suppliers by 2025, which could be sustained for several years after that. Breaking down the various service segments among the oil and gas suppliers reveals that all segments will grow in nominal terms, led by suppliers targeting equipment and materials and those providing operations and maintenance services.
Finally, H&P is tightly associated with oil and gas prices and could easily be the first stock to drop if oil prices fall due to declining demand.
Therefore, I suggest trading 65% LIFO in your entire position to protect you from a sudden drop in oil prices. This dual strategy is what I am offering in my marketplace, "The Gold and Oil corner."
3 - Segment Discussion
3.1 - North America Solutions Segment
Operating income was $92.1 million, compared to $57.4 million last year. The increase in operating income was due to improving contract economics as market pricing continued to increase, coupled with term contracts rolling onto market rates.
Direct margins increased by $35.9 million to $203.5 million as revenues and expenses increased sequentially.
Quarterly operating results were impacted by the costs associated with reactivating rigs: $7.5 million in the fourth fiscal quarter compared to $6.5 million in the previous quarter.
3.2 - Offshore Gulf of Mexico Segment
Noticeable improvement in this segment. The company recorded an operating income of $6.6 million compared to an operating income of $5.9 million during the previous quarter. Direct margins for the quarter were $9.4 million compared to $8.8 million in the prior quarter.
3.3 - International Rigs Segment
This segment had an operating loss of $0.8 million compared to an operating loss of $6.6 million during the previous quarter. The decrease in operating loss is primarily due to increased activity in Latin America, particularly with operations in Argentina.
Direct margins during the fourth fiscal quarter were $3.3 million compared to a negative $3.2 million during the previous quarter.
Current quarter results included a $1.2 million foreign currency loss compared to a $1.1 million foreign currency loss in the previous quarter.
4 - Stock Performance
HP is up 71% on a 1-year basis, while Nabors Industries ( NBR ), its direct competitor, is up 60%. HP outperformed the VanEck Vectors Oil Services ETF ( OIH ).
Helmerich & Payne - Balance Sheet: 4Q22 (Fiscal First Quarter 2023) - The Raw Numbers
Helmerich & Payne | 4Q21 (fiscal 1Q22) | 1Q22 (fiscal 2Q22) | 2Q22 (fiscal 3Q22) | 3Q22 (fiscal 4Q22) | 4Q22 (fiscal 1Q23) |
Total Revenues in $ Million | 409.78 | 467.60 | 550.23 | 631.33 | 719.64 |
Net income in $ Million | -51.36 | -4.98 | 17.75 | 45.54 | 97.15 |
EBITDA in $ Million | 47.85 | 105.38 | 124.32 | 175.95 | 229.83* |
EPS diluted in $/share | -0.48 | -0.05 | 0.16 | 0.42 | 0.91 |
Operating cash flow in $ Million | -3.72 | 22.61 | 97.75 | 117.27 | 185.38 |
CapEx in $ Million | 47.89 | 67.14 | 78.15 | 79.35 | 96.03 |
Free Cash Flow in $ Million | -51.61 | -44.53 | 19.59 | 37.92 | 89.35* |
Total cash in $ Million | 441.26 | 350.58 | 332.99 | 349.23 | 347.64 |
Long-term debt in $ Million | 542.24 | 541.97 | 542.29 | 542.61 | 542.93 |
Dividend per share in $ | 0.25 | 0.25 | 0.25 | 0.25+0.235 | 0.25+0.235 |
Shares outstanding (Basic) in Million | 107.57 | 105.39 | 106.02 | 106.08 | 106.10 |
Data Source: Company release
* Estimated by Fun Trading
Financials And Balance Sheet Snapshot
1 - Revenues Were $719.64 Million In Fiscal 1Q23
HP posted an income of $0.91 per diluted share versus a loss of $0.48 in the previous year's quarter. We are in the green following an excellent fiscal 4Q22, showing that the industry is on much better footing. President and CEO John Lindsay commented in the press release:
As expected, both the industry's and H&P's incremental rig adds during the December quarter moderated relative to what we have seen during the December quarters of the last two years. This is largely attributed to capital discipline exhibited by our customers and their desires to maintain capital budgets and improve more sustainable shareholder returns. We believe our customers' discipline has been positive for the overall economic health of this cyclical industry, enabling oilfield service companies, like ourselves, to better plan and mirror a similar discipline within our own business
Net cash provided by operating activities was $185.38 million for the first quarter of 2023 compared to $117.27 million for the fourth quarter of the fiscal year 2022.
1.1 - North America Solutions:
The operating income was $145.3 million compared to the operating income of $92.1 million during the previous quarter. The increase in operating income was primarily due to the continued benefit of beneficial contract economics, especially as rollovers of older term contracts drove improved average pricing across the fleet.
Direct margins increased by $56.8 million to $260.3 million as revenues and expenses increased sequentially. Quarterly operating results were impacted by the costs associated with reactivating rigs; $8.6 million in the first fiscal quarter compared to $7.5 million in the previous quarter.
1.2 - International Solutions:
The operating income was $1.6 million compared to an operating loss of $0.8 million during the previous quarter. Absent an impairment charge of $8.1 million during the first quarter of fiscal 2023, the improvement in operating income was due to the increase in revenue days and lower expenses primarily associated with delayed rig mobilizations.
Direct margins during the first fiscal quarter were $13.8 million compared to $3.3 million during the previous quarter. Current quarter results included a $0.3 million foreign currency loss compared to a $1.2 million foreign currency loss in the last quarter.
1.3 - Offshore Gulf of Mexico:
The operating income was $6.7 million compared to the operating income of $6.6 million during the previous quarter. Direct margins for the quarter were $9.5 million compared to $9.4 million in the prior quarter.
2 - Free Cash Flow was estimated at $89.35 Million in Fiscal 1Q23
HP Quarterly Free cash flow history (Fun Trading)
Note: Generic free cash flow is the cash from operations minus CapEx.
The company recorded a trailing 12-month FCF of $102.33 million. The free cash flow for the fiscal first quarter is estimated at $89.35 million.
On December 9, 2022, the Board of Directors of the Company declared a quarterly base cash dividend of $0.25 per share and a supplemental cash dividend of $0.235 per share; both dividends are payable on February 28, 2023, to stockholders of record at the close of business on February 14, 2023.
Also, for the fiscal year-to-date, HP has repurchased approximately 1.3 million shares for about $60 million at an average share price of roughly $47/share.
On the same day, the Board of Directors of the Company increased the maximum number of shares authorized to be repurchased in the calendar year 2023 to five million common shares representing a one million share increase from the previous year's authorization.
3 - Net Debt was $195.29 Million In Fiscal 1Q23
HP Quarterly Cash versus Debt history (Fun Trading)
The company had $347.64 million in cash and short-term investments, plus $750 million of availability under its committed revolver. Debt was $542.93 million in fiscal 1Q23. The company shows a net debt of $195.29 million with a debt-to-capitalization of 16%.
Total liquidity was roughly $1.1 billion on December 31, 2022. The debt is a $550 million public bond with maturity in 2031. All indicators show that HP is outperforming its peers, as shown in the table below:
HP Balance sheet January (HP Presentation)
4 - Outlook for the second quarter of 2023 and CapEx for full-year 2023
North America Solutions:
HP expects North America Solutions' direct margins to be between $280-$300 million, which includes approximately $4.0 million in estimated reactivation costs. Also, the company expects to exit the quarter between about 183-188 contracted rigs.
International Solutions:
International Solutions direct margins to be between $7-$10 million, exclusive of any foreign exchange gains or losses.
International Solutions' direct margins are expected to be reduced by operating costs related to establishing our Middle East hub Offshore.
Gulf of Mexico:
HP expects Offshore Gulf of Mexico direct margins to be between $8-$10 million.
CapEx Guidance FY23
The fiscal year 2023 CapEx budget ranges between $425 and $475 million.
Technical Analysis And Commentary
HP TA Chart short-term (Fun Trading StockCharts)
Note: The chart is adjusted for the dividend
HP forms an ascending channel pattern with resistance at $52 and support at $47.7.
In my preceding article, the short-term trading strategy is to trade LIFO for about 50% of your position, which I still recommend now.
I suggest selling between $52 and $52.75 with possible upper resistance at $54 and waiting for a retracement between $47 and $48.1 with possible lower support at $45.2.
Watch oil prices like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has an eventual validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks!
For further details see:
Helmerich & Payne: Another Good Quarter