HOS earnings disappoint analysts

FEBRUARY 20, 2014 — Shares in Covington, LA, headquartered Hornbeck Offshore Services, Inc. (NYSE:HOS) were trading lower today after it reported a fourth quarter earnings increase that fell below analysts' expectations.

Net income for the fourth quarter ended December 31, 2013 was $22.2 million or $0.61 per share, compared to $11.3 million or $0.31 per share for the prior-year quarter.Income from continuing operations for the fourth quarter was $22.1 million or $0.61 per share, compared to $9.4 million or $0.26 per share in the prior year quarter. Revenues for the fourth quarter rose 22.2% to $144.9 million from $118.6 million a year ago.

Analysts polled by Thomson Reuters had expected the company to earn $0.62 per share on revenue of $145.01 million for the fourth quarter.

Here's how Cowen & Company sees things.

We believe HOS's 4Q13 earnings release has modestly negative implications for the stock. The company reported operating earnings of $0.60 per share, below our $0.64 and consensus of $0.62 as new-gen OSV utilization was once again below expectations. Higher-than-anticipated cost guidance will also weigh on shares, but we think the company's plan to reposition vessels out of the GOM is a smart one.

Opex and Utilization Cause the Miss; Guidance to Weigh on Shares

HOS reported 4Q13 earnings from continuing operations of $0.60 per share, versus our estimate of $0.64 and consensus of $0.62. Results exclude a $0.01 gain on discontinued operations. Adjusted EBITDA of $66.8mm was also below our $69.5mm forecast. While new-gen OSV utilization of 79.4% once again disappointed (down from 80.7% in 3Q13 and below our 86.4% estimate), the miss was largely driven by higher-than-expected opex. Costs in the quarter totaled $65.1mm, ahead of our $62.3mm estimate and up 10% sequentially.

Initial cost guidance for 2014 will also likely weigh on the shares today. Opex this year is expected to fall within the range of $305-$320mm, above our previous estimate of $297mm. The midpoint of the range is still 3% above our expectations even after adjusting for an additional $6.4mm in mobilization and conversion costs. The expected average new-gen OSV vessel count in 2014 was above our forecast as well, but other guidance items were roughly in-line with our outlook.

Moving Pieces Around the Board

On a positive note, MPSV effective utilization was 100% in the quarter, and rates rose 32% sequentially. Given the current strength in the MPSV sector, the company intends to convert one of its 310 class OSVs currently under construction into a 310 class MPSV. The vessel will add a 150-ton heave-compensated knuckle-boom crane, helideck, accommodations for 70 people and will be capable of supporting two work-class ROVs. The company's newbuild program #5 will now include 19 new-genclass OSVs and 5 MPSVs (was 20 and 4).

Timing mismatches between rig and vessel deliveries in the GOM continue to put pressure on vessel utilization and dayrates; leading edge spot dayrates in the region have softened somewhat to the $36,000-$43,000 range (from $38,000-$45,000) last quarter. As a result, HOS is proactively mobilizing five OSVs to Mexico and one vessel to the Mediterranean for specialty operations starting in 2Q14. The removal of vessels from the GOM will enable the company to keep pricing propped up in anticipation of the ramp in GOM activity later this year and into 2015. We view this move as prudent given the rig delivery delays the region is experiencing.