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Oil drilling equipment maker FMC Technologies Inc. reported third quarter diluted earnings per share of 41 cents, below the Zacks Consensus Estimate of 57 cents and the year-ago period profit of 50 cents. The weak results were mainly due to increased non-operating expenses, depressed North American market for ‘Surface Technologies’ and lower profitability in the company’s energy infrastructure business. These factors were partially offset by the strength in subsea systems orders.

Revenues at $1,419.0 million were up 10.2% year over year but came below the Zacks Consensus Estimate of $1,565.0 million.

Segmental Analysis

Subsea Technologies: FMC is particularly well positioned in the subsea technologies market, where it competes with larger rival Cameron International Corp. . The segment revenue for the most recent quarter was $929.2 million, an increase of 11.5% from the third quarter of 2011, buoyed by a rise in sales of subsea systems.

Operating profit came in at $115.5 million, up 20.2% year over year. The positive comparison reflects higher sales and better execution.

Surface Technologies: Segment revenues were up 8.1% year-over-year to $362.8 million. The main reasons for the improved performance can be attributed to the sales ramp-up in the surface wellhead business.

But segment operating profit – at $57.5 million – decreased 12.6% from the year-ago period, hamstrung by an adverse sales mix.

Energy Infrastructure: The segment revenue for the July-September period was $133.2 million, 3.2% above the third quarter 2011 level.

However, operating profit declined to $7.7 million from $13.9 million earned a year ago, pulled down by lesser margin assignments related to direct drive systems and separation systems.

Backlog

As of September 30, 2012, FMC’s total backlog (including intercompany eliminations) was $5,282.2 million, compared to $4,602.2 million a year ago. Of this, backlog for Subsea Technologies was $4,415.9 million, while Surface Technologies and Energy Infrastructure backlog finished the quarter at $554.6 million and $312.7 million, respectively.

Balance Sheet

During the quarter, FMC spent $91.3 million on capital programs. As of September 30, 2012, the company had cash and cash equivalents of $566.2 million and debt of $1,529.1 million, with a debt-to-capitalization ratio of 46.9%.

Guidance

Management lowered its 2012 earnings per share guidance to the $1.85–$1.95 range from the previous band of $2.10–$2.20.

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.

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