Dril-Quip Inc. ( DRQ - Analyst Report ) reported fourth-quarter 2012 earnings of 76 cents per share, beating the Zacks Consensus Estimate by 2 cents. The quarterly earnings also increased 8.6% from the year-ago profit level of 70 cents. The outperformance was mainly backed by growth in product and service revenues as demand for offshore equipment climbed.

The company registered total revenue of $188.5 million in the quarter, up 9.8% from the year-ago level of $171.6 million. The reported figure, however, was almost at par with the Zacks Consensus Estimate of $189.0 million.

Operating income expanded almost 13% to $41.6 million from the year-earlier level of $36.8 million. On the cost front, on an annualized basis, selling, general and administrative expenses rose 31.6% to $23.6 million from the year-earlier level of $17.9 million, while its engineering and product development costs decreased nearly 1%. Notably, depreciation and amortization expenses increased 12.8% to $6.8 million.

Backlog

As of Dec 30, 2012, the company had a backlog of $881.0 million, compared with $716 million in the prior-year period.

Capex

Capital expenditures in the quarter were $10.2 million, compared with $11.1 million in the year-earlier quarter.

Guidance

For the first quarter of 2013, the offshore drilling equipment maker expects earnings between 73 cents and 83 cents per diluted share, excluding any unusual or special charges. Additionally, based on improving market conditions, Dril-Quip expects its full-year 2013 adjusted earnings per share expectation to range between $3.40–$3.60.

The company remains upbeat on the four-year contract with Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras ( PBR - Analyst Report ) regarding the supply of subsea wellhead systems as well as tools for drilling deepwater wells offshore Brazil. The company is well positioned to take advantage of the project. Thus, the company through 2013 and beyond is geared for general secular growth backed by Petrobras' planned newbuild program.

Zacks Rank

Dril-Quip holds a Zacks Rank #4, which is equivalent to a Sell rating for a period of 1 to 3 months. However, there are other stocks in the oil and gas sector – Range Resources Corporation ( RRC - Analyst Report ) and NGL Energy Partners LP ( NGL - Snapshot Report ) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.