Dril-Quip Inc. (DRQ) reported third-quarter earnings of 72 cents per share, beating the Zacks Consensus Estimate of 67 cents and year-earlier profit of 69 cents. The favorable statistics were mainly driven by lower costs and increased product revenues. Before adjusting one-time items, earnings were 63 cents per share.
 
Revenues were $138.2 million, up 4.5% from the year-earlier level. The increase was primarily associated with higher revenues from subsea and surface equipment, partially offset by lower revenues from offshore rig equipment and services.
 
Revenues in the Western Hemisphere increased more than 6% to $82.9 million while revenues in the Eastern Hemisphere increased by approximately 18% to 49.7 million. Asia-Pacific revenues decreased more than 15% year over year to $23.7 million.
 
Product revenues accounted for approximately 85% of the total revenues, while the rest was by Service revenues. Product revenues increased 8.3% year over year to $117.5 million driven by Eastern Hemisphere, partially offset by the Asia-Pacific region. Service revenues decreased approximately 13% year over year to $20.6 million due to lower revenues from both the Hemispheres.
 
Operating income for the quarter was down from the year-earlier level to $34.4 million while operating margin decreased approximately 210 basis points to 24.9%.
 
At the end of the quarter, the company had a backlog of $623 million, compared to $528 million at the end of the year-ago period. Management guided fourth-quarter EPS in the range of 62 cents to 72 cents.
 
Capital expenditures for the quarter were $15.2 million, compared to $9.1 million in the year-earlier quarter. At the end of the quarter, the company had $95.9 million in cash and $1.53 million in long-term debt.
 
We are maintaining our Hold recommendation on Dril-Quip shares. We continue to believe that Dril-Quip remains in a sound position on the back of solid backlog and strong financial health given an almost debt-free balance sheet. We believe that the company’s core products will play a vital role in the near-to-medium term growth trajectory.
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