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Dril-Quip Inc.’s (DRQ - Analyst Report) share price, up 8.2% on the day it released its fourth-quarter 2013 results, reflects the positive sentiment of the market. Adjusted earnings of $1.21 per share beat the Zacks Consensus Estimate of $1.13. The quarterly earnings also increased from the year-ago profit level of 78 cents. The outperformance was mainly backed by growth in product and service revenues as well as increased demand for offshore equipment.

The company registered total revenue of $232.5 million in the quarter, up 23.3% from the year-ago level of $188.5 million. The reported figure was below the Zacks Consensus Estimate of $234.0 million.

Operating income grew nearly 52% to $63.2 million from the year-earlier level of $41.6 million. On the cost front, selling, general and administrative expenses rose 10.5% to $26.1 million from the year-earlier level of $23.6 million, while engineering and product development costs increased 24.5%.

Full-year 2013 adjusted earnings of $4.27 per share increased nearly 41% from the year-ago adjusted profit level of $3.03 a share.

Total revenue in 2013 improved 19% on a year-over-year basis to $872.4 million.

Backlog

As of Dec 31, 2013, the company had a backlog of $1.2 billion compared with $881 million as of Dec 31, 2012.

Guidance

For the first quarter of 2014, the offshore drilling equipment maker expects earnings between $1.10 and $1.20 per diluted share, excluding any unusual or special charges. Additionally, based on current market conditions, Dril-Quip expects full-year adjusted earnings per share at $5.00–$5.20.

Going forward, management expects large orders from the Gulf of Mexico (GoM) and Brazil on 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.

Outlook

Dril-Quip registered an impressive gross margin increment both for its products and services divisions. Installation and maintenance work on subsea projects drove margins for the quarter. Capacity addition helped the company accomplish its target 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 likely remain relatively stable through the usual fluctuations in commodity prices.

Zacks Rank

Dril-Quip currently holds a Zacks Rank #3 (Hold). Other stocks in the oil and gas sector such as Helmerich & Payne, Inc. (HP - Analyst Report), Matrix Service Co. (MTRX - Snapshot Report) and Patterson-UTI Energy Inc. (PTEN - Analyst Report) with a Zacks Rank #1 (Strong Buy) are expected to outperform.
 

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