Are These Two Diamonds in the Rough or an Investor's Best Friend?
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Marilyn Monroe sang, "A kiss on the hand may be quite continental, but diamonds are a girl's best friend." Does that go for everything "diamonds?" Concerning equities, are different kinds of "diamonds" an investor's best friend?
Diamond Offshore Drilling (NYSE: DO) provides contract drilling services to the energy industry. They're a leader in deepwater drilling, and own and operate one of the largest fleets of offshore drilling units globally.
They recently reported net income for the fourth quarter of 2012 of $156 million, or $1.12 per share on a diluted basis. This compares with net income of $188 million, or $1.36 per share on a diluted basis, in the same period a year prior. Revenues in the fourth quarter of 2012 were $751 million, compared with revenues of $748 million in the same quarter last year.
For the full-year 2012, they reported net income of $720 million, or $5.18 per share on a diluted basis. This compares with net income of $963 million, or $6.92 per share on a diluted basis, in 2011. Revenues for the full-year 2012 were $2.987 billion, compared with $3.322 billion in 2011.
The company declared a special quarterly cash dividend of $0.75 per share of common stock and a regular quarterly cash dividend of $0.125 per share of common stock. Both dividends are payable on March 1, 2013 to shareholders of record on Feb. 19, 2013.
Going forward, investors should consider that Diamond Offshore Drilling is working continually to manage operating costs across their fleet. Mr. Larry Dickerson, President and CEO, said there's some cost inflation pressure in their industry. However, he stated that the company is focusing on controlling and reducing their expenses.
In addition, a report in Drilling Contractor Magazine (November 2012 - Joanne Liou) indicated that "…the offshore market is providing more signs for a positive outlook as well, powered by the deepwater Golden Triangle and a robust jackup market." Offshore, the Golden Triangle (Brazil, the U.S. Gulf of Mexico (GOM) and West Africa) continues to shine light on the deepwater stage. More discoveries in East Africa are building opportunities for more activity in 2013. Diamond Offshore Drilling can benefit from this with their varied fleet of 32 semisubmersibles, 13 jackups and four drillships.
In an earnings call discussing Q4 2012 results, Mr. Michael D. Acuff, Senior Vice President of Contracts and Marketing at the company, stated that, "Turning to the deepwater. We continue to see strong demand in this segment, also with several long-term programs on the horizon beginning in 2014 and beyond." He further said, " One point to note, in the Gulf of Mexico we are continuing to see a resurgence in exploration and development activity, in both the deepwater and ultra-deepwater segment."
Harry Winston Diamond Corporation (NYSE: HWD) is a diamond company with premium assets in the diamond industry's mining and retail segments. They supply rough diamonds to the world market from their 40 percent ownership interest in the Diavik Diamond Mine. Their luxury brand segment is a premier diamond jeweler/luxury timepiece retailer.
In December 2012, Harry Winston Diamond announced their third quarter fiscal 2013 results for the quarter ending Oct. 31, 2012. Consolidated sales increased 51 percent to $180.4 million for the third quarter. This is in comparison to $119.7 million for the comparable quarter of the prior year.
Consolidated net profit attributable to shareholders for the third quarter was $3.4 million or $0.04 per share. This is compared to a net loss attributable to shareholders of $4.7 million, or $0.06 per share in the comparable quarter of the prior year.
For the Mining segment, rough diamond sales increased 134 percent to $84.8 million, versus $36.2 million in the comparable quarter of the prior year. This sales increase resulted from a 286 percent increase in volume of carats sold during the quarter. Luxury brand segment sales increased 14 percent (17 percent at constant exchange rates) to $95.6 million, compared to $83.5 million in the comparable quarter of the prior year. Total number of units sold increased by 8 percent over the comparable quarter of the prior year.
Significant for investors is last month's article in MarketWatch (Jan. 18, 2013), which related that analysts at Nomura said that diamond shortfalls are continuing and probably won't end in the short-term. Moreover, there are not many diamond exploration projects on the table. Nomura analysts expect demand to be greater than supply from 2015 and beyond. They say this should lead to improved margins for strong producers. Additionally, they believe this should launch a new diamond exploration cycle.
Further key information for investors is that Harry Winston announced in January 2013 their agreement to sell their luxury goods segment to The Swatch Group in a $750-million deal. This would allow the company to concentrate on their mining activities. Harry Winston and JV partner Rio Tinto (NYSE: RIO) expect the Diavik mine to produce approximately six-million carats this year from processing approximately 1.6-million tons of ore, and processing 200 000 t of stockpiled ore. Rio Tinto owns a 60 percent stake in the mine. Rio Tinto's Diamonds & Minerals group consists of mining, refining and marketing operations across the diamonds and the minerals sectors.
"Diamonds," by name, can be quite continental… offshore and onshore… and an investor's best friend. It all depends on your investing proclivity. Is it deepwater daring, a mining mindset - or maybe a bit of both?
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