TDW: Financial Analysis through June 2007

We previously reviewed Tidewater's (TDW) quarterly Income Statement for the period that ended on 30 June 2007. The earlier review included a comparison of the actual income data with our expectations.

We were unable at that time to perform a complete financial analysis and compute gauge scores because the company hadn't yet made a Balance Sheet and Cash Flow Statement available for the quarter. This information gap has since been rectified, and we now have the full set of financial statements. Tidewater submitted these statements in a 10-Q report filed with the SEC.

This post reports on our evaluation of the data contained in the financial statements.


When we analyzed Tidewater after the March quarter, which was actually the fourth of their fiscal year, the Overall score was a very good 61 points. Of the four individual gauges that fed into this composite result, Growth was the strongest at 23 points. Profitability was weakest at 13 points. [Note that recent algorithm tweaks led to minor changes in the previously reported scores.]

Now, with the available data from the June 2007 quarter, our gauges display the following scores:

• Cash Management: 11 of 25
• Growth: 16 of 25
• Profitability: 7 of 25
• Value: 13 of 25
  

• Overall: 45 of 100
  

Cash Management. This gauge decreased from 17 points in March to 11 points now.

The measures that helped the gauge were:

• LTD/Equity = 15.9%, compared to 18.3 percent a year ago
• Debt/CFO = 0.7 years, compared to 0.7 and 0.8 years 3 and 12 months ago, respectively
  
• Cash Conversion Cycle Time (CCCT) = 38 days, down from 52 days, for this measure of efficiency
• Current Ratio =3.6; down to a more normal range, but still very much a sign of strength. Cash being spent on new vessels or stock repurchases is not putting the company in financial straps.

The measures that hurt the gauge were:

• Days of Sales Outstanding (DSO) = 84.5 days, not enough of an improvement from the 85.7-day level one year earlier to matter.
• Working Capital/Market Capitalization = 11.4 percent, down from 13.2 percent
  

Growth. This gauge decreased from 23 points in March to 16 points.

• Revenue growth = 21.5 percent, down from 32 percent in a year
• Revenue/Assets = 42.9 percent, up from 40.7 percent in a year; sales efficiency is improving
• Net Income growth = 34 percent, down from 137 percent in a year
• CFO growth = 27 percent, down from 116 percent in a year
  

These growth measures are all commendable. They just happen to be down from last year, when growth was achieved from a smaller base. Net income benefited from a change in the income tax rate from 27 to 20 percent The tax rate decreased as a result of a continuing shift to more operations outside the U.S.

Profitability. This gauge decreased from 13 points in March to 7 points now.

The measures that helped the gauge were:

• ROIC = 17 percent, up sharply from 12 percent in a year
• Operating Expenses/Revenue = 66 percent, down from 71 percent in a year
  

The decrease in operating expenses was primarily the result of an increase in Gross Margin.

The measures that hurt the gauge were:

• FCF/Equity = 8 percent, down from 12 percent in a year (capital investments are eating into FCF)
  
• Accrual Ratio = 8.2 percent, up from +4 percent in a year
  

The increasing Accrual Ratio tells us that less of the company's Net Income is due to CFO, and, therefore, more is due to changes in non-operational Balance Sheet accruals.

Value. Tidewater's stock price rose over the course of the quarter from $58.58 to $70.88. The Value gauge, based on the latter price, dropped to 13 points, compared to 15 points three months ago.

The measures that helped the gauge were:

• Enterprise Value/Cash Flow = 8.7, down from a median of 11.6
• P/E = 11, down from a median of 18
• P/E to S&P 500 average P/E = 35 percent discount
  

The measures that hurt the gauge were:

• Price/Revenue ratio = 3.45, up from a long-term average of 2.8.

The average P/E for the Oil Well Services and Equipment industry is currently a more expensive 18.6. The average Price/Revenue for the industry is currently 3.9.

Now at a moderate 45 out of 100 possible points, the Overall gauge has fallen from lofty levels in the 60s. We can attribute some of the drop to growth slowing from unsustainable levels, the higher stock price, and capital investing (beneficial in the long run, but it cuts into working capital and free cash flow).