Oil drilling equipment maker FMC Technologies Inc. (FTI) reported first quarter diluted earnings per share of 41 cents, below the Zacks Consensus Estimate of 45 cents. The weaker-than-expected results were mainly due to the effects of higher project costs and expenses on subsea margins.

However, compared with the year-ago period, FMC’s earnings per share improved by a handsome 28.1% – from 32 cents (adjusted) to 41 cents – on the back of strength in subsea and surface systems orders. The first quarter 2011 results have been adjusted for a one-time tax benefit.

Revenues at $1,396.6 million were up 29.1% year over year and were also above the Zacks Consensus Estimate of $1,393.0 million.

Segmental Analysis

Subsea Technologies: FMC is particularly well positioned in the subsea technologies market, where it competes with larger rival Cameron International Corp. (CAM). The segment revenue for the most recent quarter was $894.9 million, an increase of 29.8% from the first quarter of 2011, buoyed by a rise in sales of subsea systems.

Operating profit came in at $75.1 million, up 7.3% year over year. The positive comparison reflects higher sales, partially offset by steeper completion costs associated with a West African project, as well as sustained expenditure related to the expansion of headcount to support growth.

Surface Technologies: Segment revenues were up 29.7% year-over-year to $377.8 million. The main reasons for the improved performance can be attributed to the sales ramp-ups in the fluid control and surface wellhead businesses.

Segment operating profit, at $78.0 million, increased 51.8% from the year-ago period, driven by higher volume in fluid control and surface wellhead on the back of strong North American shale activity.

Energy Infrastructure: The segment revenue for the January-March period was $137.0 million, 33.0% above the first quarter 2011 level. This reflects better performance from measurement solutions and material handling in the quarter.

Operating profit came in at $9.3 million, compared with $4.5 million earned a year ago, pumped up by higher volumes in measurement solutions as well as material handling.

Backlog

As of March 31, 2012, FMC’s total backlog (after accounting for intercompany eliminations) was $5,599.2 million, compared to $4,573.2 million at March 31, 2011. Of this, backlog for Subsea Technologies was $4,688.5 million, while Surface Technologies and Energy Infrastructure backlog finished the quarter at $627.8 million and $285.4 million, respectively.

Balance Sheet

During the quarter, FMC spent $92.0 million on capital programs. As of March 31, 2012, the company had cash and cash equivalents of $361.6 million and debt of $741.7 million, with a debt-to-capitalization ratio of 32.2%.

Guidance

Management reiterated its 2012 earnings per share guidance in the $2.10 – $2.25 range.

Rating & Recommendation

FMC shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

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