Helmerich & Payne: Outlook Is Improving

Summary

• Helmerich & Payne reported $467.60 million in the fiscal second quarter of 2022, up from $296.17 million in the same quarter a year ago.
• H&P's North America Solutions segment left the second quarter with 173 active rigs in April.
• I recommend buying HP below $45, expecting a low at $42.
• Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Learn More »

Joe Raedle/Getty Images News

Introduction

The Tulsa, OK-based Helmerich & Payne (NYSE:HP) released its fiscal second-quarter 2022 results on April 28, 2022.

Note: I recommend reading my new article on Nabors Industries (NBR), published on April 30, 2022, by clicking here.

1 - Fiscal 2Q22 Results Snapshot

Helmerich & Payne, Inc. announced a fiscal second-quarter 2022 net loss of $4.98 million or $0.05 per diluted share compared to a loss of $1.13 per diluted share in the same quarter a year ago. This quarter, revenues were $467.60 million, up significantly from $296.17 million last year.

While I have found nothing to be over-exciting, it was good progress with a narrower-than-expected loss this quarter, beating analysts' expectations as surging oil and gas prices have uplifted demand for its services and equipment.

The company keeps its previously-announced CapEx range of $250 million-$270 million for 2022.

H&P's North America Solutions segment left the second quarter with 173 active rigs in April (174 rigs in the March presentation) or an increase of 19 rigs sequentially.

CFO Mark Smith indicated in the conference call:

We were pleased with our progress and momentum during the quarter, which saw our active North American solutions rig count increase in line with expectations exiting the quarter at 171 rigs after re-commissioning 17 Flex rigs in the second quarter, and 27 in the first fiscal quarter. From here we expect to see our rig count growth moderate in the coming quarters as there is more rig churn developing in the market.

HP: Rig status presentation (H&P Presentation)

HP: Rig count press release (H&P press release)

Note: H&P anticipates leaving the third quarter with 175 active rigs.

2 - Investment Thesis

The investment thesis is improving, but I consider the pace of this progress inadequate, and it has not translated to something substantial at the balance sheet level. H&P has returned a net loss for the last nine quarters. It is a sign of weakness for me.

However, with the oil prices reaching a record high and the urgent need to drill the onshore US, I believe H&P is a solid long-term investment that should provide some good upside while paying a quarterly dividend of $0.25 per share. H&P's capital structure is one of the best compared to its three main competitors.

H&P capital structure comparison presentation (H&P)

However, H&P is tightly associated with oil and gas prices, creating issues. Therefore, I suggest trading 50% LIFO of your long-term position to offset the unfavorable effects of the oil market that could arise suddenly and reduce the risk attached to this volatile sector.

As I always indicate in my public articles, this dual strategy is what I am guiding in my marketplace, and it forms the backbone of my Gold and Oil marketplace.

Note: Trading LIFO is possible only in the USA (or Japan), but it is not allowed in Canada or Europe. A perfectly legal way to circumvent this issue is to separate your short-term trading account from your long-term position.

The company pays a quarterly dividend of $0.25 per share with a yield of 2.17%.

The US Land rigs segment is the most significant in revenues and represents 87.4% of the total revenue.

The US Land rigs segment is the most influential in revenues and represents 87.4% of the total revenue.

HP quarterly revenues per segment fiscal 2Q22 (Fun Trading)

3 - Segment Discussion

3.1 - North America Solutions Segment

H&P averaged 171 contracted rigs during the fiscal first quarter, up from an average of 154 rigs at the end of December. North America Solutions operating expenses were $28.89 million ($109.83 million last year) in the first quarter.

Operating gross margins increased to $114.42 million ($84.47 million last year).

North America Solutions revenue per day increased by approximately $1,500/day or 7% to $24,500/day on a sequential basis, with additional increases anticipated.

3.2 - Offshore Gulf of Mexico Segment

The US offshore had an operating income of $5.47 million compared to $2.98 million last year. The quarter's operating gross margins were $8.60 million compared to $6.21 million in the prior year.

3.3 - International Rigs Segment

International business activity had an operating income of $8.05 million compared to an operating loss of $3.46 million in the previous year.

4 - Stock Performance

HP is up 64% on a 1-year basis, while Nabors Industries (NBR), its direct competitor, is still up 75%. HP outperformed the VanEck Vectors Oil Services ETF (OIH).

Data by YCharts

CEO John Lindsay said in the conference call:

we plan to remain the leader in the US plan rig market by continuing to deliver great outcomes to customers and receiving the appropriate margin for the value we deliver. Like our customers, we are requiring more from every CapEx dollar spent and we note a similar trend occurring within the oilfield service industry.

Helmerich & Payne - Balance Sheet: 1Q22 (Fiscal Second-Quarter 2022) - The Raw Numbers

Helmerich & Payne	1Q21 (fiscal 2Q21)	2Q21 (fiscal 3Q21)	3Q21 (fiscal 4Q21)	4Q21 (fiscal 1Q22)	1Q22 (fiscal 2Q22)
Total Revenues in $ Million	296.17	332.21	343.81	409.78	467.60
Net income in $ Million	-121.00	-55.56	-79.16	-51.36	-4.98
EBITDA in $ Million	-47.74	30.09	3.19	47.85	105.38*
EPS diluted in $/share	-1.13	-0.52	-0.74	-0.48	-0.05
Operating cash flow in $ Million	78.41	31.01	46.62	-3.72	22.66
CapEx in $ Million	16.76	18.42	32.98	47.89	56.59
Free Cash Flow in $ Million	61.65	12.59	13.64	-51.61	-33.93*
Total cash in $ Million	561.73	557.81	1,116.23	441.26	350.58
Long-term debt in $ Million	481.65	481.00	1,025.49	542.24	541.97
Dividend per share in $	0.25	0.25	0.25	0.25	0.25
Shares outstanding (Basic) in Million	107.86	107.89	107.90	107.57	105.39

Click to enlarge

Data Source: Company release

* Estimated by Fun Trading

Financials And Balance Sheet Snapshot

1 - Revenues Were $467.60 Million In Fiscal 2Q22

HP: Quarterly Revenues history (Fun Trading)

Helmerich & Payne reported $467.60 million in the fiscal second quarter of 2022, up from $296.17 million in the same quarter a year ago and up 14.1% sequentially.

However, HP posted another loss of $0.05 per diluted share versus $0.48 in the previous quarter. Some progress here, but I would love to see some income again. CFO Mark Smith said in the conference call:

Absent these select items adjusted diluted loss per share was $0.17 in the second fiscal quarter versus an adjusted $0.45 loss during the first fiscal quarter.

Rocketing oil prices have stimulated demand for drilling equipment and services in the USA. According to Baker Hughes, the U.S. rig count has increased significantly to 695, up from 438 a year ago.

2 - Free Cash Flow Was An Estimated Loss Of $33.93 Million In Fiscal 2Q22

HP: Quarterly Free cash flow History (Fun Trading)

Note: Generic free cash flow is the cash from operations minus CapEx.

The company recorded a negative trailing 12-month FCF of $59.31 million. The free cash flow for the fiscal second quarter is estimated at $33.93 million.

The dividend payout represents $105 million annually based on 105.3 million shares and $1.00 per share annually.

3 - Net Debt Rose To $191.4 Million In Fiscal 2Q22

HP: Quarterly Cash versus Debt history (Fun Trading)

The company shows a net debt of $191.4 million. The company had $350.58 million in cash and short-term investments plus $750 million of availability under its committed revolver. Total liquidity is roughly $1.1 billion at the end of March 31, 2022.

4 - 2022 Guidance

Operational outlook for the third quarter of fiscal year 2022. CFO Mark Smith said in the conference call:

inflation is starting to put upward pressure on the reactivation costs for looking ahead to the third quarter of fiscal 22 year for North America solutions. As I mentioned earlier, we ended Q2 near the midpoint of our exit guidance range.

For 2022, the company expects gross capital expenditures to be approximately $250 to $270 million.

4.1 North America Solutions

H&P expects North America Solutions' operating gross margins between $150 and $165 million, including approximately $5.5 million in estimated reactivation costs. H&P expects to exit the quarter at between 175 contracted rigs.

4.2 International Solutions

H&P expects International Solutions operating direct margins to be between $(3) and $(1) million, exclusive of foreign exchange gains or losses. The margins will be affected by costs incurred to move a rig from the US to the company's Middle East hub.

4.3 Offshore Gulf of Mexico

The offshore Gulf of Mexico operating direct margins are expected to be between $7-$9 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 triangle pattern with resistance at $49 and support at $43.

In my preceding article, the short-term trading strategy is to trade LIFO about 50% of your position. Nothing has changed from my previous article.

I suggest selling between $48 and $50 and waiting for a retracement between $45 and $42.

However, HP could experience a breakdown if oil prices lose momentum and retest the lower support at $35. Conversely, if oil prices increase and stay high, H&P could break out and retest $55.

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!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of HP either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I also trade short-term as explained in my article.