Shares in offshore energy service companies Transocean (NYSE: RIG) fell by 10% in the first half hour of trading on 23 February. The big news, however, came after the close on February 22, when Transocean reported results. It was tough to read.
The main number for Wall Street was Transocean’s adjusted loss of $ 0.34 per share during the fourth quarter of 2020. It was down from a loss of $ 0.11 in the third quarter and far from $ 0.19 per share loss that analysts had expected. Investors do not like it when companies lack consensus estimates, so it is not so shocking that Transocean’s share fell.
The thing is, there was more bad news here. When the company reported its results for the fourth quarter of 2019, its backlog was $ 10.2 billion. In the third quarter of 2020, it reported that the backlog was $ 8.2 billion. The current earnings report points to the $ 7.8 billion lag. There is still a lot of work to be done with that figure, but the declines suggest that demand in the energy sector remains weak. And it does not bode well for the future here, although management suggests things will get better “later this year and next year.”
Although oil prices have risen late and have actually returned to pre-coronavirus levels, the industry still seems to be holding back on the spending front. It is a headwind for companies like Transocean that support the drilling of the energy sector. Backlogs, something of a power of attorney for demand, will probably become an increasingly important value here for investors.
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