Acergy Tops but Lowers 2010 View

Earlier today, London-based oilfield contractor Acergy S.A. (ACGY) reported significantly better-than-expected third-quarter (ending August 31, 2009) results on the back of solid margins, strong operational performance, and good project execution skills. Earnings per share from continuing operations came in at 29 cents, well above the Zacks Consensus Estimate of 16 cents.

Compared with the corresponding quarter of 2008, Acergy’s earnings per share was down 44.2%, reflecting the still tentative operating environment due to the commodity price and credit market overhang. In particular, business conditions remain challenging for the company’s relatively high-margin Sub-sea construction, Umbilicals, Risers, and Flowlines (SURF) activities, as macroeconomic concerns force the clients to delay their awards.

Revenue & Operating Performance

Revenue for the quarter fell 12.7% year-over-year to $558.3 million, primarily due to lower exploration and production activity levels in the North Sea and Brazil, partially offset by strong contributions from West Africa and Asia-Pacific. Gross profit decreased 38% year-over-year, reflecting lower activity levels and fewer projects in installation phases.

Operating income from continuing operations before taxes was down 43% year-over-year, mainly due to lower activity levels, partly offset by a reduction in administrative expenses and higher contribution from associates and joint ventures. Adjusted EBITDA from continuing operations for the quarter was $110.0 million, down more than 32% year-over-year, while EBITDA margin was 19.7%, down 570 basis points.

Backlog

Acergy's order backlog, as of August 31, 2009, stood at $2.6 billion, up from $2.4 billion in the previous quarter, but below the prior-year quarter’s level of $3.0 billion. Of the $2.6 billion total backlog position, $0.6 billion is likely to be executed in fiscal year 2009. Acergy's capital expenditures for the quarter were $34.1 million. At the end of the quarter, the company had cash on hand of $807.0 million, up from $695.8 million in the prior quarter.

Outlook

Management indicated that the business environment still remains challenging and the company anticipates lower revenues and margins next year because of intense competition and price pressure. However, according to Acergy, the medium-term market fundamentals remain strong, primarily due to rising field depletion and the necessity to access new reserves. It expects revenue for fiscal year 2009 to be in line with previous guidance, while EBITDA margin is likely to be above previous guidance.

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