Oil drilling equipment maker FMC Technologies Inc. (FTI) reported third quarter 2010 earnings per share from continuing operations of 66 cents, slightly below the Zacks Consensus Estimate of 67 cents. Compared with the year-ago quarter, earnings per share declined 9.6% from 73 cents, primarily due to lower volumes and reduced operating income.
The company’s quarterly revenues of $960 million came in short of our expectation of $1,000 million as sales declined in the company’s Energy Production Systems segment. On a year-over-year basis, revenues declined 11.8% from $1,088.4 million.
FMC Technologies registered a total segment operating profit of $140.4 million, down 15.0% from the prior-year quarter.
Energy Production Systems
The segment revenues for the most recent quarter were $770.1 million, a decrease of 16.9% from the third quarter of 2009. This decline was due to a 19.6% fall in sales of subsea systems.
Operating profit came in at $105.9 million, down 24.6% year over year. The negative comparison reflects lower volume in the subsea systems due to lower subsea backlog at the start of the quarter and the timing of new project execution.
Energy Processing Systems
Segment revenues were up 15.9% year over year to $192.7 million, attributed to the sales ramp-up in the fluid control business, which continued to benefit from the resurgence in North American pressure pumping activity.
Segment operating profit, at $34.5 million, increased 39.1% from the year-ago quarter, driven by higher operating margin in the fluid control unit, somewhat offset by lower profits in all other businesses within the segment.
Backlog
As of September 30, 2010, FMC’s total backlog was $3,649.6 million, compared with $2,959.4 million in third quarter 2009 and increased 28% sequentially. Of this, backlog for Energy Production Systems was $3,390.0 million (including $3,100 million in subsea backlog), while Energy Processing Systems’ backlog finished the quarter at $263.9 million.
Balance Sheet
As of September 30, 2010, the company had cash and cash equivalents of $512.1 million and long-term debt (including current portion) of $578.6 million, with a debt-to-capitalization ratio of 31.6%.
During the quarter, FMC incurred a capital expenditure of $26.3 million. The company also bought back 679 thousand shares for $40.9 million, with 2.5 million shares remaining in its stock repurchase program.
Guidance
Management raised its 2010 earnings outlook to the range of $2.90 to $2.95 per share from the previous $2.70 to $2.90 range.
Our Recommendation
FMC Technologies holds a market leading position in the subsea systems business, which is expected to rebound in the coming days. Driven by a prominent international presence along with technological expertise and sharp execution skills, the company is well poised to sustain its growth momentum.
However, the diminishing sales in the Energy Production Systems unit, unstable crude oil and natural gas industrial scenario and operational risks in economically and politically volatile regions leave us highly apprehensive, compelling us to maintain a long- term Neutral rating.
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