Cameron Tops on Margin Strength

Cameron International Corp.’s (CAM - Analyst Report) third quarter results were better than expected, as margins held up well during the period. Earnings per share, excluding severance-related costs, came in at 57 cents, surpassing the Zacks Consensus Estimate of 53 cents.
 
However, on a year-over-year basis, Cameron’s adjusted earnings per share fell 19.7%, reflecting slowdown in energy demand that hampered drilling activities. Gross profit during the period came at $403.8 million, down 11% year over year, as revenues fell 18.1% to $1.2 billion. However, gross profit margin rose approximately 261 basis points year-over-year to 32.8%, driven by cost reductions.
 
DPS Segment
 
Revenues for the DPS segment totaled $791.5 million, a decrease of 17.3% from the year-ago quarter, mainly due to the timing of certain subsea project deliveries. The DPS segment EBITDA fell 8.8% year-over-year to $171.8 million.
 
V&M Segment
 
Quarterly revenues in the Valves & Measurement (V&M) segment totaled $294.7 million, down 23.2% year-over-year, while the segment EBITDA witnessed a 29.1% year-over-year fall to $65.8 million. This was on account of a substantial drop in North American business activity levels.
 
CS Segment
 
Revenues in the Compression Systems (CS) segment totaled $145.6 million, a fall of 11.2% year over year. The segment’s EBITDA was $24.6 million, down 23.8% year over year. The negative comparison was due to reduced E&P activities by oil companies.
 
Backlog
 
During the quarter, Cameron received orders totaling $1.3 billion, down 48.6% year-over-year due to declines in every business segment on the back of overall market weakness and lack of large project awards. The composition of current order booking is: DPS – 72%, V&M – 19% and CS – 9%. At the end of the third quarter, total backlog stood at $5.1 billion, down 8.7% from the year-earlier level, again reflecting soft markets and the lack of sizable project awards.
 
Capital Expenditure & Balance Sheet
 
During the quarter, Cameron spent $56 million on capital expenditures, with the full-year budget expected to be approximately $240 million. As of Sept 30, cash and cash equivalents stood at $1.5 billion, while total long-term debt stood at $1.3 billion (debt-to-capitalization ratio of 31.0%).
 
Guidance
 
Management expects full-year earnings in the range of $2.26 – $2.30 per share, an increase from the earlier range of $2.15 – 2.25. The company further indicated that it expects the NATCO transaction to close during the fourth quarter.
 
We currently rate Cameron shares as Outperform.