Nabors (NBR) To Cut Costs, Dividend & Capex To Reduce Debt
Zacks Investment Research | Jan 09, 2019 10:16PM ET
Nabors Industries Ltd. (NYSE:NBR) recently announced that it is looking to significantly reduce its debt burden by various means. Per Bloomberg, the CEO of Nabors, Anthony Petrello is also taking a 10% pay cut to support the motion. The stock rallied 12.6% following the news.
Let’s have a look at the company’s balance sheet to have a better understanding of the situation.
Balance Sheet Analysis
As of Sep 30, 2018, the company had $688.6 million in cash and short-term investments, and $3,737.3 million in long-term debt. It has a debt-to-capitalization ratio of approximately 55.8%, much higher than the industry average of 33.8%.
Nabors’ relatively stretched balance sheet in this severe credit-constrained environment has been a cause of concern for a long time. The increasing debt and elevated capital expenditure associated with fleet recapitalization programs including rig upgrades and newbuilds have put pressure on its balance sheet, restricting the financial flexibility of the company. The upgrade of rigs is also an important objective of the company as its older legacy rigs are not effective enough to drill shale wells, which can put a dent on its income. Although the sign of improvement in its balance sheet was not impressive so far, it has been in management’s priority list for quite a while.
Nabors’ Moves to Reduce Debt
The company claims to have lowered net debt by around $230 million in the fourth quarter of 2018 and aims to reduce it by another $200-$250 million in 2019. Nabors is taking several measures that are targeted to improve its financial health, as given below:
Capital Spending: The company is planning to restrict its 2019 capital spending at $400 million versus expected capital expenditure of $500 million in 2018. This move is significant in the sense that Nabors’ free cash flow (FCF) in the trailing 12 months was negative at $289 million, reflecting weakness in cash-generating abilities. The restriction of capital spending can improve its FCF situation. However, it can also have a negative impact on its rig upgradation and modernization works.
Cost Cuts: The company intends to reduce its General & administrative (G&A) as well as Research & Engineering (R&E) costs by 10% in 2019 from 2018 levels. Arresting expenses from these two fronts are important as G&A and R&E costs rose 8.9% and 18.4%, respectively, in the first nine months of 2018. The cost optimization method is appreciable as the company’s total costs rose 15.2% year over year to $2.7 billion during this period.
Dividend Cut: Starting from the second quarter of 2019, Nabors is planning to reduce its quarterly cash dividend payment by 83% to a penny per share (leading to four cents per share on an annualized basis). The company intends to focus on regaining financial strength instead of giving capital back into the hands of its shareholders, keeping the long run in mind.
Price Performance
The stock has declined 60.9% in the past year compared with 39.8% collective fall of the Zacks Investment Research
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.