Impairment charges hit Tidewater net earnings

FEBRUARY 5, 2014 — The most recent Annual Report from offshore services giant Tidewater Inc. (NYSE:TDW) was full of all sorts of imagery of runners, with the one sporting the company's logo "setting the pace." Yesterday, though, the offshore services giant reported earnings that had some observers wondering if that pace was flagging.

Tidewater reported third quarter net earnings for the period ended December 31, 2013, of $12.6 million, or $0.25 per common share, on revenues of $365.2 million.

For the same quarter last year, net earnings were $29.9 million, or $0.61 per common share, on revenues of $309.5 million. The immediately preceding quarter ended September 30, 2013, had net earnings of $54.2 million, or $1.09 per common share, on revenues of $367.9 million.

Included in the current fiscal quarter’s net earnings is a non-cash goodwill impairment charge of $56.3 million ($43.4 million after tax, or $0.87 per share) resulting from the company’s annual goodwill impairment assessment performed during the current quarter. As a result of the general reduction in the level of business in the company’s Asia/Pacific region, the entire amount of goodwill previously allocated to the Asia/Pacific region was impaired during the current quarter.

Cowan & Company says:

We believe Tidewater's F3Q14 earnings release has modestly negative implications for the stock. Adjusted EPS of $0.99 fell short of our $1.22 estimate and consensus of $1.10. Deepwater rates fell 5% sequentially and were 6% below our $30,739/d estimate. Offsetting this was continued improvement in TS&S; average rates rose 4.5% sequentially to $15,029/d, and utilization reached a cycle-high of 73%.

Tidewater reported adjusted operating EPS of $0.99, excluding one-time items, below our estimate of $1.22 and consensus of $1.10. Results excluded an $0.87/sh goodwill impairment in the company's Asia/Pacific segment, an $0.11/sh gain on the sale of assets, and a $0.02/sh FX gain. A lower-than-expected tax rate (17.9% vs.our 22.7% forecast) added approximately $0.06/sh to EPS.

Total revenue of $365 million compared with our $377 million estimate; the shortfall was largely due to lower-than-expected revenue in the Sub-Saharan Africa/Europe market ($163 million vs. our $178 million forecast). Fleet-wide utilization of 76.7% surpassed our 74.4% estimate and rose by 3.5% sequentially from 73.2%. The improved activity level during the quarter was driven by the TS&S segment, which saw utilization rise to 72.8% from 66.3% last quarter and surpass our expectations of 67.2%. Deepwater utilization averaged 81.7% in F3Q, above our 80.5% expectation and roughly flat over last quarter.

A moderate decline in deepwater dayrates was largely offset by a similar increase in TS&S rates; the fleet-wide average dayrate dipped slightly from $17,603 in F2Q14 to $17,492 as a result, which was in-line with our $17,582 forecast. TS&S rates of $15,029/d came in ahead of our $14,538 forecast and rose 4.5% sequentially. Deepwater rates fell 5% to $28,944 (from $30,481 last quarter), and missed our expectations of $30,739.

Total vessel operating costs of $203.4 million matched our $203.7 million estimate. R&M costs of $40.9 million exceeded our $36.6 million forecast as rose 5% sequentially. Insurance expense of $4.4 million was short of our $5.7 million estimate, while fuel costs of $18.6 million were well below our $22.3 million forecast.

EBITDA of $112 million fell short of our $124 million estimate, largely due to a greater-than-expected revenue decline in Sub-Saharan Africa/Europe (8.7% sequential drop vs. expectations of 0.4%). Vessel operating margin of 44.3% was shy of our 46% estimate, while EBITDA margins of 30.7% fell below our 32.9% forecast.

The company's average total fleet count in F3Q14 fell by 15 vessels to 303 from F2Q14 as 15 stacked units were divested. Average active vessels was flat at 268 (including 243 new vessels after adding four during the quarter).

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