FMC Tech Misses EPS, Trims Guidance

Oil drilling equipment maker FMC Technologies Inc. ( FTI - Analyst Report ) reported second quarter diluted earnings per share of 46 cents, below the Zacks Consensus Estimate of 48 cents. The weaker-than-expected results were mainly due to lower profitability in the company’s energy infrastructure business.

However, compared with the year-ago period, FMC’s earnings per share improved by a handsome 18.0% – from 39 cents to 46 cents – on the back of strength in subsea and surface systems orders.

Revenues at $1,494.9 million were up 21.6% year over year and were also above the Zacks Consensus Estimate of $1,486.0 million.

Segmental Analysis

Subsea Technologies: FMC is particularly well positioned in the subsea technologies market, where it competes with larger rival Cameron International Corp. ( CAM - Analyst Report ) . The segment revenue for the most recent quarter was $945.8 million, an increase of 18.1% from the second quarter of 2011, buoyed by a rise in sales of subsea systems.

Operating profit came in at $109.7 million, up 30.6% year over year. The positive comparison reflects higher sales, better execution, as well as contribution from the Schilling Robotics acquisition.

Surface Technologies: Segment revenues were up 33.4% year-over-year to a record $413.8 million. The main reasons for the improved performance can be attributed to the sales ramp-ups in the fluid control and surface wellhead businesses.

Segment operating profit, at $84.2 million – the highest ever reported – increased 49.0% from the year-ago period, driven by higher volume in fluid control and surface wellhead on the back of strong North American shale activity.

Energy Infrastructure: The segment revenue for the April-June period was $139.4 million, 16.0% above the second quarter 2011 level. This reflects better performance from measurement solutions and material handling.

Operating profit came in at $9.1 million, compared with $10.7 million earned a year ago, pulled down by lower volumes in loading systems.

Backlog

As of June 30, 2012, FMC’s total backlog (including intercompany eliminations) was $5,204.7 million, compared to $4,964.3 million a year ago. Of this, backlog for Subsea Technologies was $4,347.7 million, while Surface Technologies and Energy Infrastructure backlog finished the quarter at $573.6 million and $284.7 million, respectively.

Balance Sheet

During the quarter, FMC spent $99.3 million on capital programs. As of June 30, 2012, the company had cash and cash equivalents of $275.3 million and debt of $1,216.2 million, with a debt-to-capitalization ratio of 43.2%.

Guidance

Management narrowed its 2012 earnings per share guidance to the $2.10–$2.20 range from the previous band of $2.10–$2.25.

Rating & Recommendation

FMC shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.