Yesterday, oil drilling equipment maker FMC Technologies Inc. (FTI) reported better-than-expected third quarter results, helped by robust performance from its subsea oil and gas processing systems. Earnings per share from continuing operations came in at 73 cents, 11 cents above the Zacks Consensus Estimate and a penny above the prior-year period. However, revenue was down 3.5% year-over-year to $1.1 billion, as sales declined in the company’s Energy Processing Systems segment.

 
Energy Production Systems
The segment revenue for the most recent quarter was $926.9 million, an increase of 3.4% from the third quarter of 2008, driven by a 7% rise in sales of subsea systems. Operating profit came in at a record $140.4 million, up more than 38% year-over-year. The year-over-year positive comparison was achieved on the back of higher margins and increased subsea volumes. 

Energy Processing Systems
Energy Processing Systems revenues were down 27.4% year-over-year to $166.2 million. The main reasons for the underperformance can be attributed to the fluid control business, which continues to be adversely affected by the reduction in North American pressure pumping activity, and from the material handling business, which has several projects nearing completion. Segment operating profit, at $24.8 million, declined almost 42% from the year-ago period, reflecting lower sales and operating margin in the fluid control business. 

Backlog
As of September 30, 2009, FMC’s total backlog was $3.0 billion, compared to $3.1 billion at June 30, 2009. Of this, backlog for Energy Production Systems was $2.7 billion (including $2.4 billion in subsea backlog), while Energy Processing Systems’ backlog finished the quarter at $226.7 million. 

Capex, Share Repurchases, & Balance Sheet 
During the quarter, FMC spent $21.1 million on capital programs, while it repurchased 917,000 shares at a cost of $38.5 million. At the end of the September quarter, the company had cash and cash equivalents of $397.4 million and long-term debt of $319.4 billion. 

Acquisitions 
During the quarter, FMC announced two acquisitions, Direct Drive Systems (DDS) for approximately $120 million, and Multi Phase Meters AS (MPM) for approximately $30 million plus an earn out. 

Company Guidance
Management guided towards fourth quarter earnings per share in the 70 – 75 cents range, implying full-year earnings of $2.83 to $2.88 per share (up from the previous guidance of $2.55 – $2.65). 

Outlook 
We believe that FMC’s strong backlog provides for ample visibility in its earnings growth and cash flow prospects going forward. Going by the recent economic optimism, we feel there is strong likelihood of a recovery in 2010, which will further improve demand for the company’s products and services.
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