Weatherford International is increasing its job cuts from 10,000 to 11,000, representing approximately 20% of its workforce. With continuing weak North American market conditions, Weatherford is further reducing its cost structure to reflect the current environment. During the second quarter of this year, the company completed its initial headcount reduction of 10,000. This target has now been revised upward to 11,000, with the increase principally in the US with a focus on support positions.
In North America, the company reported that second-quarter revenues of $808 million were down $355 million, or 30% sequentially (on an average rig count decline of 40%), and down $851 million, or 51%, over the same quarter in the prior year. Second-quarter operating losses of $92 million were down $82 million sequentially and down $346 million from the same quarter in the prior year. The sequential decline in revenue is due to the continued decline in US rig count, the seasonal spring break-up in Canada and pricing pressure on all of Weatherford’s service and product offerings. Sequential decremental margins of 23% improved from the first quarter of 49% due to the impact of cost-reduction efforts, including the incremental headcount reductions announced last quarter that were concentrated in this region.
Internationally, second-quarter revenues of $1.4 billion were down $39 million, or 3% sequentially, and down $261 million, or 16%, over the same quarter in the prior year. Second-quarter operating income of $205 million (14.7% margin) was down $33 million sequentially and by $54 million from the same quarter in the prior year.
Weatherford says that its procurement savings initiative continues to be on track. In addition to the company’s headcount reductions, this quarter, Weatherford closed three of its manufacturing and service facilities. The company also closed more than 60 operating facilities across North America through the first half of 2015 and plans to close 30 more by the end of the year.
Lastly, Weatherford’s cost-reduction objectives, both cyclical and structural, are targeted globally. Based on the company’s 2015 reduction in force actions, it now expects annualized savings of over $700 million.
Bernard J. Duroc-Danner, Weatherford’s chairman of the board, president and CEO, stated, “We remain confident in our ability to generate positive free cash flow on a full year basis. By implementing focused measures and continued discipline, we generated second-quarter free cash flow of $104 million, a sequential improvement of $370 million. This result was achieved despite industry headwinds and a very weak North American market, which drove negative net income for the quarter.”