Norwegian oilfield contractor Acergy S.A. (ACGY) reported slightly weaker-than-expected third-quarter (ending August 31, 2010) results, weighed down by lower activity levels in the North Sea and Asia-Pacific, and higher expenses. These factors were partially offset by good project execution skills and solid activity levels in West Africa.
Earnings per ADR from continuing operations came in at 24 cents, below the Zacks Consensus Estimate of 26 cents and the prior-year profit of 29 cents.
Revenue & Operating Performance
Revenue for the quarter decreased 11.3% year-over-year to $495.1 million, primarily due to soft exploration and production activity levels in the North Sea and Asia-Pacific, partially offset by strong contributions from West Africa and Brazil. However, gross profit was up 9.0% compared to the third quarter of 2009, reflecting good project execution across all operating territories, somewhat negated by lower activity levels and lower vessel utilization.
Acergy, which agreed to merge with peer Subsea 7 earlier this year, saw its operating income from continuing operations go up 15.3% year-over-year, mainly due to lower operating expenses and higher contribution from associates and joint ventures, partly offset by weaker sales and rise in administrative expenses. Adjusted EBITDA from continuing operations for the quarter was $123.5 million, up 12.3% year-over-year, while EBITDA margin rose 520 basis points from the prior-year period to 24.9%.
Backlog
Acergy’s order backlog as of August 31, 2010 stood at $3.5 billion, above the previous quarter level of $2.3 billion and also higher than the year-ago backlog of $2.6 billion. The sequential and the year-over-year improvements reflect strong order intake during the quarter. Of the $3.5 billion total backlog position, $600 million is likely to be executed in fiscal year 2010.
Capital Expenditure & Balance Sheet
Acergy’s capital expenditures for the quarter were $169.6 million. At the end of August 2010, the company had cash on hand of $547.9 million, down from $631.2 million in the prior quarter. Long-term debt was $430.3 million, representing a debt-to-capitalization ratio of around 29%.
Outlook
Management indicated that the medium-term business environment remains strong, underpinned by a more stable oil price.
The company anticipates more activity in the conventional West African market during the next few months. Acergy believes its substantial local presence will provide competitive strength in the region.
In particular, Acergy is encouraged by the strong tendering activity in the company’s relatively high-margin Sub-sea construction, Umbilicals, Risers, and Flowlines (SURF) market and anticipates a spate of major contract awards later this year and in 2011 (particularly in West Africa, China, Brazil and Australia). However, given the size and complexity of these new major SURF projects, offshore installation is expected to commence beyond 2011.
Acergy sees limited visibility in the North Sea, where projects are slow to reach fruition. Pricing environment for shorter-term work in the region also remains very competitive. In the Gulf of Mexico, following the tragic oil spill incident and the consequent deepwater drilling ban (which was lifted last week), major SURF projects could see some delays. However, Acergy has very limited exposure to the region and as such any direct impact on its financial performance in short or medium-term is quite unlikely.
Acergy remains on track to meet its 2010 revenue expectations (anticipated to be in line with 2009), while EBITDA margin is likely to be slightly ahead of the 2009 result.
Acergy currently has a Zacks #3 Rank (short-term Hold rating).
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