Smith Int'l Tops, Revenue Down

Smith International Inc. (SII) reported its first quarter 2010 earnings of 19 cents per share, versus the Zacks Consensus Estimate of 17 cents and the year-earlier performance of 52 cents. The reported quarter was primarily influenced by an increased drilling activity in the North American market.

Operational Performance

Revenue during the quarter decreased more than 11% year-over-year to $2.14 billion. With respect to business segments, M-I SWACO accounted for approximately 52% of the total quarterly revenue. The segment's first quarter revenue totaled $1.11 billion. This represented a year-over-year decline of 4%. However, sequential revenue in the quarter improved 5% from $1.06 billion. The positive sequential comparison reflected an increase in offshore rig count.

The Oilfield segment reported revenue in the quarter was $574.8 million, down 15.7% year-over-year. However, it increased 11.3% sequentially. The sequential increase in revenue was largely contributed by drill bits and motors as well as cased-hole wireline and borehole enlargement services.

Revenue in the Distribution segment totaled $451.8 million, down 21% year-over-year but up 10% sequentially. The sequential revenue increase can be attributable to the energy sector operations.

Operating income in the quarter was slightly up sequentially, while it declined 48% year-over-year to $124.9 million.

Smith International ended the quarter with a cash balance of $547.8 million. Total debt declined to $1.8 billion, representing debt-to-capitalization ratio of 20.9%. With a favorable industry condition, the company raised its 2010 capex budget by 15%. We are unchanged regarding our Neutral recommendation.

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