Diamond Offshore Drilling Inc., which contracts drilling rigs to oil companies, on Friday missed analysts' estimates for third-quarter earnings because of a variety of unexpected costs. But most analysts characterized the results as a hiccup interrupting a very profitable long-term story.
Early Friday, Diamond, which is majority-owned by conglomerate Loews Corp., posted third-quarter earnings of $1.19 per share, falling shy of Wall Street forecasts by 6 cents. Revenue of $514.5 million was flat versus the second quarter and missed analysts' projections of revenue of $519 million.
Diamond, based in Houston, said results were hampered mostly by unforeseen costs. The company's rigs faced downtime for repairs and mandatory surveys. Also, Diamond spent money upgrading some ships to protect them from hurricanes.
Even though day rates for rigs increased during the quarter, revenue was sequentially flat, partially because contracts for three ships reset to older, lower rates.
Most analysts lowered earnings estimates to account for higher costs, but none appeared alarmed and most maintained high investment ratings on the company's stock.
"This quarter represents a small speed bump on the way to much higher earnings and cash flow in coming quarters," Friedman Billings Ramsey analyst Robert MacKenzie wrote in a note to clients Monday.
The company concluded its conference call by announcing two new contracts with state-owned Mexican oil company Petroleos Mexicanos, prompting Deutsche Bank analyst Mike Urban to upgrade Diamond Offshore to "Buy" from "Hold."
Despite the earnings miss, Urban said visibility into new contracts offsets the risks of owning the stock. Also, Urban said, he thinks Diamond Offshore may pay a special dividend as the company generates more cash.
source: Associated Press
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