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Analyst Blog

Dril-Quip Inc. (DRQ - Analyst Report) reported second-quarter 2013 adjusted earnings of $1.05 per share, beating the Zacks Consensus Estimate of 88 cents. The quarterly earnings also increased from the year-ago profit level of 74 cents. The outperformance was mainly backed by growth in product and service revenues as demand for offshore equipment increased.

The company registered total revenue of $222.0 million in the quarter, up 26% from the year-ago level of $176.6 million. The reported figure also was above the Zacks Consensus Estimate of $203.0 million.

Operating income expanded 36% to $56.2 million from the year-earlier level of $41.3 million. On the cost front, selling, general and administrative expenses rose 33.6% to $23.3 million from the year-earlier level of $17.4 million, while its engineering and product development costs decreased 1.5%.


As of Jun 30, 2013, the company had a backlog of $1.1 billion, compared with $697 million in the prior-year period.


For the third quarter of 2013, the offshore drilling equipment maker expects earnings between 95 cents and $1.05 per diluted share, excluding any unusual or special charges. Additionally, based on improving market conditions, Dril-Quip raised its full-year 2013 adjusted earnings per share expectation to $3.85–$4.05 from the $3.40–$3.60 guided previously.

Going forward, we expect large orders in 2013 from the Gulf of Mexico (GoM) and Brazil, with rising demand and activity level in these regions. This gives it the financial flexibility to take advantage of new growth opportunities while returning capital to shareholders.

Dril-Quip registered an impressive gross margin increment both for its product and services divisions. Installation and maintenance work on subsea projects drove margins for the quarter. Capacity addition helped the company accomplish its targets for the year. Again, Dril-Quip boasts an impressive balance sheet with effectively no debt and ample free cash flow to fund capital spending.

Dril-Quip’s results are heavily levered with continued strength in global deepwater drilling markets, especially in South America and the Asia-Pacific region. Given the operators’ long-term outlook on these projects, deepwater drilling and other related services will remain relatively stable through the usual fluctuations in commodity prices.

Zacks Rank

Dril-Quip holds a Zacks Rank #1, which is equivalent to a Strong Buy rating for a period of 1 to 3 months. There are other stocks in the oil and gas sector – Legacy Reserves Lp (LGCY - Snapshot Report), Pioneer Southwest Energy Partners L.P. , and Parker Drilling Co. (PKD - Snapshot Report) – that hold the same Zacks Rank and are also expected to outperform.