HP (HPQ) Q3 2016 Results

Dion Weisler – President and Chief Executive Officer

From market share to maximizing profits

“We were more challenged in our business ink products where we drove pricing discipline and lost some share. While our Japanese competitors are talking about shifting their focus from share to profits due to the strength of the yen, it is not broadly evident yet that this is showing up in less aggressive pricing.”

Managing the supplies business

“…we made a strategic decision to evolve how we run and manage our supplies business in recognition of the changing market dynamics, giving global price transparency. To harmonize pricing, we determined an increase in marketing, combined with a reduction in channel inventory levels, was necessary. And we took the first step in the third quarter. With continued support from our channel partners, the execution is on track.”

Some shortages in supplies expected in adjacent segments to the PC industry

“With regards to shortages in supplies, I don’t believe, in Q3, we saw any material shortages that we had to with. However, as you know, these are long supply chains and we are seeing on the horizon some shortages, particularly around LCDs, DRAM and Flash memory. And it’s not so much coming from the PC industry. It’s more coming from adjacent categories going to – glass going into televisions, memory going into phones that are likely to double density, which is putting pressure on the overall industry.”

Cathie Lesjak – Chief Financial Officer

Too early to tell on the Brexit effect

“For Q3, we saw very, very limited impact from Brexit. And this is largely as a result of the fact that we were largely hedged by the time the Brexit vote actually happened. And so, Q3 was really a non-event. On a go-forward basis, it’s unclear exactly what the impact is going to be. We are definitely seeing and, in some cases, following with our own pricing increases. What’s less clear is not so much what the currency impact is and how we adjust to the currency impact, whether it’s through hedges or through price increases, it’s really what is going to be the impact on demand, what is GDP going to actually do, both in the UK and then, frankly, if it spreads broader to EMEA. And it’s just too early to tell.”

Inventories down, marketing investments up

“…supplies channel inventories is down over the course of the half by $450 million and we were also going to increase our marketing investments.

Helmerich and Payne 3Q15 Earnings Call Notes

Helmerich & Payne (HP) John W. Lindsay on Q4 2015 Results

The major theme across the industry is survival

“For many, the major theme across the industry is survival. Service pricing continues to decline and this has led to sharp reductions in personnel, expenses and investments across the board.”

Even high quality rigs are idle, but there is still a replacement cycle of rigs ongoing

“In many respects, this downturn has been indiscriminate of rig quality as evidenced by the number of Tier 1 rigs on the sideline. Even with some of the best rigs idle, there is still evidence that replacement cycle is ongoing. A year ago, approximately 41% of the active rigs were AC drive. And today, approximately 58% of the active rigs in the U.S. are AC drive rigs, with the remaining 42% of the active rigs made up of a legacy fleet of SCR and mechanical rigs that continue to be less relevant as the cycle wears on.”

Our fleet profile is a competitive advantage

“H&P’s fleet profile is a competitive advantage as it allows the company to provide a family of solutions for customers. We provide FlexRigs that are suited for a wide range of well configurations and well complexities for customers today.”

Our rigs meet future needs, optimal for complex laterals

“we believe our fleet provides what customers will need in the future. We have over 340 AC drive rigs in the U.S. market, including more than 310 FlexRigs rated at 1,500 horsepower, the optimal horsepower for the more difficult and complex horizontal extended reach laterals being drilled today.”

Rig revenue and expense per day

“the average rig revenue per day slightly decreased to $26,218 in the fourth fiscal quarter, and the average rig expense per day decreased to $13,823, resulting in an average rig margin per day of $12,395 in the fourth fiscal quarter.”

212 of 344 available rigs in the US are idle currently

“our 344 available rigs in the U.S. land segment includes approximately 132 rigs generating revenue and 212 idle rigs. Included in the 132 rigs generating revenue are 108 rigs under term contracts, 104 of which are generating revenue days. In addition, 24 rigs are currently active in the spot market for a total of 128 rigs generating revenue days in the segment.”

Customers aren’t indicating a sharp reduction in rigs after Thanksgiving

“We don’t have that indication. I’ve heard and read some of the same that you’ve described. At this stage, we’re not getting that indicator from our customer base. We have been successful on a few – putting a few rigs to work. Our hope is that we could continue to have some – put a couple of rigs to work during the rest of the quarter. But I think in general, what Juan Pablo said is right on track. It’s rig count flat to slightly down. But we don’t see a dramatic reduction, based on what we’ve heard right now, in our rig count.”

There are rigs rolling off contract and customers running out of budget dollars though

“I do, however, think that there are continuing to be other rigs that are in the industry that are on-term contracts that are rolling off, and so that could have an impact. I think there’s also, obviously, this possibility of customers just running out of budget dollars due to the low oil price environment.”

Most are expecting rig count to continue to decline in 2016

“our hope would be is that we would at least be able to maintain our activity set that we have today going into at least the first part of the first calendar quarter of 2016. But that’s – of course, that’s not what we’re hearing. We’re hearing that overall, the rig count, a lot of folks are expecting it to continue to decline.”

Higher end rigs are about 50% utilization right now

“We have over 180 rigs in the U.S. land segment that are pad capable, and about 88 rigs of those are active or contracted. So that represents close to a 50% utilization.”

Idle rigs affect margin

“I believe five countries where we’re active and three of those only have one rig that is active. And the basic cost of maintaining an operation in a particular country is something that does impact the average rig revenue and average rig expense – pardon me, the average rig expense per day”

Going to continue to see legacy rig fleet replaced by AC drive

“I think our expectation would be, going forward, is you’re going to continue to see the legacy fleet being replaced by AC drive rigs and, obviously, our vote would be FlexRigs. And we’re going to see that happen over time.”

At some point you can’t reduce the legacy rate low enough on the older fleet

“The question will be: what about the pricing? But we’ve heard this for years. There’s a level – you can’t reduce the day rate low enough on that older legacy fleet, in many cases, to be able to save money for the customer. I mean, at the end of the day, it ends up costing the customer to go with that older rig fleet. ”

We’re continuing to drive performance improvement this year

“As we look back all the way to 2010-2011, we’ve had double-digit improvements in productivity footage per day year-over-year, maybe with one exception, and that was going from 2013 to 2014, I think, because of the level of activity that the industry experienced. But we’re obviously seeing a lot of performance improvement this year. Obviously, you would expect that with having all of your people – you have a lot of experience on rigs. But we’re continuing to see 15% to 20% performance improvement year-over-year in 2015 versus 2014.”