Weatherford’s WFT first-quarter results were respectable given its recent history, but it still has many areas that can be improved. Revenue was $3.8 billion, up 7% from the prior year, while down 5% sequentially. Segment operating income was $429 million, roughly flat compared with the prior quarter’s $432 million (excluding items), but a decline of 23% from the prior year, thanks to weaker North American results. North American revenue of $1.7 billion was up 1% sequentially, but operating margins dipped slightly to 13.2% from 13.4% due to a bulk sale of guar at what appears to be a loss. Weatherford’s international performance was a bit better, as revenue increased 17% to $2.1 billion from the prior year, led by a 32% increase in revenue in the Middle East region. However, a 9.7% international operating margin still fares poorly against Baker Hughes’ BHI 11%, Halliburton’s HAL 12.8%, and Schlumberger’s SLB 20.5% performance this quarter.

Weatherford also took another $8 million in aftertax losses on legacy Iraq contracts. Net debt increased $308 million sequentially, and now stands at $8.6 billion and working capital increased $67 million sequentially, despite the $221 million sequential drop in revenue. Weatherford also entered into another 364-day term loan for $300 million on May 1, which was subsequently fully drawn. This suggests the second quarter may also show an increase in net debt. We’d prefer to see better working capital management. Our fair value estimate and no moat rating remain unchanged.