Weatherford's Q3 2025 Earnings Call: Contradictions Emerge on Mexico Market Stability, Middle East Pricing Pressures, and Divestiture Impact

The above is the analysis of the conflicting points in this earnings call

Guidance:

• Q4 revenue expected $1.245B–$1.28B.
• Q4 adjusted EBITDA expected $274M–$287M; margins to rise from Q3 due to cost stabilization, better mix and slight volume absorption.
• Q4 adjusted free cash flow expected flat to slightly up vs Q3, contingent on payments from Mexico.
• CapEx to trend down; full-year target 3%–5% of revenues.
• Effective tax rate for 2025 expected in the mid-20% range.

Business Commentary:

* Strong Operational Performance Amid Market Headwinds: - Weatherford International reported third-quarter results above expectations, with North America up slightly and Latin America seeing a 10% sequential improvement. - The performance was driven by the successful execution of the One Weatherford team and cost optimization initiatives despite a soft macro environment and market headwinds.

• Cost Management and Margin Expansion:
• The company achieved a significant 70 basis points expansion in EBITDA margins despite tariff cost pass-throughs and pricing pressures in certain markets.

• Cost management efforts and structural improvements in working capital and CapEx were key to maintaining strong cash flow generation.

• Mexico Market Recovery and Payment Improvements:

• Despite challenges in Mexico, Weatherford saw sequential revenue improvements in the country, with Mexico revenues expected to remain down by 60% for the year.

• Payments from Mexico began to improve, with a recent collection of payments being the first since early 2025, indicating potential stability and future recovery.

• Innovation and New Product Launches:

• Weatherford demonstrated innovation with over 20 new product and service launches, including technology advancements like intelligent completions and digital products.
• The focus on innovation aims to increase margins, reduce capital intensity, and improve working capital efficiency.

Sentiment Analysis:

Overall Tone: Positive

• "results were above the expectations"; EBITDA margin expansion of over 70 bps; adjusted free cash flow of $99,000,000; management: "we feel very confident in the strength of our balance sheet" and "I have never been more excited about the future of Weatherford." These statements emphasize operational progress, cash generation and balance sheet strength despite market softness.

Q&A:

• Question from David Anderson (Barclays): Can you expand on where you're seeing pricing pressure — regionally or by product line?
  Response: Pricing pressure is concentrated in undifferentiated/commodity services (notably Middle East and parts of North America); Weatherford will prioritize margins and avoid chasing share on unfavorable cash outcomes, focusing on differentiated offerings.

• Question from Scott Gruber (Citigroup): Is Saudi finding a bottom and will oil activity meaningfully recover for Weatherford there?
  Response: Saudi appears to be bottoming with an expected rebound in H2 (driven mainly by gas with some oil activity); Saudi remains a long-term, sizable growth opportunity for the company.

• Question from Saurabh Pant (Bank of America): What's the outlook on Mexico collections and working capital; how should we think about 2026?
  Response: Management is moderately optimistic after a recent payment and government steps supporting the customer; collections momentum plus structural initiatives should bring working capital toward the 25% target and stabilize into 2026.

• Question from Philip Youngworth (BMO): What drove the DRE margin improvement despite lower year‑over‑year revenue?
  Response: Margin recovery was driven by Latin America revenue improvements and cost stabilization, with positive volume absorption in service‑heavy DRE operations.

• Question from James West (Melius Research): The Q4 free cash flow guide is $100M+ — how reliant is this on Pemex receivables and what must happen to hit it?
  Response: $100M is a conservative floor; additional Pemex/Mexico payments would materially increase Q4 free cash flow, and management expects materially higher free cash flow conversion into 2026 as Mexico normalizes.

• Question from Jim Rawlinson (Raymond James): How should we think about full‑year 2026 activity levels?
  Response: Too early for firm 2026 revenue specifics; expect a soft H1 and a H2 rebound driven by offshore and select international markets, while prioritizing margin preservation and improved free cash flow conversion (>40%).

• Question from Derek Pothaiser (Piper Sandler): How do your cost optimization actions map to prior margin expansion targets and what are the key initiatives?
  Response: Savings combine rapid cyclical actions (≈2,000 headcount reductions, ~$145M savings) with ongoing structural programs — shared services, automation, AI, procurement and process improvements — to drive the targeted margin expansion.

• Question from Doug Becker (Capital One): How will intelligent completions and Weatherford Intelligence impact financials in the next few years?
  Response: New digital/intelligent completions are margin‑accretive, capital‑light and reduce inventory intensity, improving margins, capital efficiency and free cash flow conversion over time.

• Question from Josh Yang (Daniel Energy Partners): Please detail the ERP implementation timeline, benefits and business impact.
  Response: A cloud ERP rollout over 2–3 years (targeting 2027–2028), funded within existing CapEx, aimed at transforming supply chain, inventory and procurement processes to drive efficiency, margin upside and working capital improvements.