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Oceaneering (OII) Rallies 24% Despite Missing on Q3 Earnings

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Shares of Oceaneering International, Inc. (OII - Free Report) have gained more than 24% since third-quarter 2020 earnings announcement on Oct 28. Although the company incurred a loss wider than the Zacks Consensus Estimate, investors were impressed by its encouraging guidance for both the fourth quarter and 2021. Based on Oceaneering’s ability to improve its cost structure, it intends to generate positive free cash flow this year and the next. Oceaneering also expects 2021 EBITDA to be in line with 2020's estimated range of $165-$175 million.

Oceaneeringreported adjusted loss per share of 18 cents, worse than the Zacks Consensus Estimate of a loss of 13 cents. This underperformance could be attributed to lower revenue contributions from the Subsea Robotics, Manufactured Products and Offshore Projects Group units.

However, the prior-year adjusted loss was 30 cents. The narrower year-over-year loss is owing to benefits from cost-control measures.

Meanwhile, the company’s revenues of $439.74 million surpassed the Zacks Consensus Estimate of $418 million but fell 11.7% from the year-ago sales of $498 million.

Segmental Information

In September, Oceaneering restructured its business units into five operating segments, namely subsea robotics, manufactured products, offshore projects group, integrity management & digital solutions, and aerospace and defense technologies.

Per Rod Larson, president and CEO of Oceaneering, this streamlining will help the company better its cost management moves as well as position it to cater to customer needs with greater efficiency and optimize its shareholder value.

Subsea Robotics (SSR): The unit provides remotely operated submersible vehicles for drill support, vessel-based inspection, subsea hardware installation, pipeline surveys and maintenance services.

Revenues of $119.6 million compared unfavorably with $151.5 million in third-quarter 2019. Operating income of $2.1 million was lower than $15.5 million in the year-ago quarter due to less involvement from tooling and survey businesses. Meanwhile, days on hire fell 10.2% year over year to 13,601 while ROV utilization decreased to 59% from 60% a year ago. 

Manufactured Products (MP): The segment focuses on manufactured products business, theme park entertainment systems and automated guided vehicles (AGV).

Revenues came in at $110.4 million, down from the prior-year figure of $114.5 million. Moreover, operating loss of $38.2 million compared unfavourably with the year-ago loss of $2.2 million. This underperformance can be attributed to decreased order intake in the company’s manufacturing business resulting from a significant decline in final investment decisions due to persistent pricing woes and lower demand. Meanwhile, the backlog dropped to $318 million as of Sep 30, 2020 from the year-ago backlog of $582 million.

Offshore Projects Group (OPG): The segment involves Oceaneering’s former Subsea Projects segment excluding survey services and global data solutions, and its service and rental business excluding ROV tooling.

Revenues declined 17.8% to $73.2 million from $89.1 million in the year-ago quarter. Moreover, the unit’s operating loss of $12.3 million deteriorated from the loss of $34,000 in third-quarter 2019.

Integrity Management & Digital Solutions (IMDS): This segment mainly covers the company’s Asset Integrity segment along with its global data solutions business (GDS).

Revenues of $53.9 million declined from the year-ago figure of $65.3 million. However, the segment reported an operating income of $793,000 against the prior-year loss of $1.7 million as a result of enhanced execution.

Aerospace and Defense Technologies (ADTech): This segment is engaged in Oceaneering’s government business, which focuses on defense subsea technologies, marine services and space systems. 

Revenues from this segment totalled $82.6 million, up from $77.2 million in third-quarter 2019.

Operating income of $13.1 million rose from $11.7 million in the year-ago quarter on the back of lower unallocated expenses.

Capital Expenditure & Balance Sheet

Capital expenditure in the third quarter including acquisitions summed $7.98 million. As of Sep 30, 2020, Oceaneering had cash and cash equivalents worth $358.8 million, and a long-term debt of $805.6 million. The total debt to total capital was 59%.

Guidance

For the full year, the company estimates adjusted EBITDA in the $165-$175 million range.  Further, it narrows its capex guidance to the $50-$60 million band.  Meanwhile, Oceaneering projects unallocated expenses at around $30 million for the fourth quarter.

Oceaneering expects cash tax payments in the range of $30-$35 million. The company is targeting expense savings of $125-$160 million, annualized by the end of this year (including $35-$40 million of reduced depreciation expense) and hopes to generate a positive free cash flow for 2020. Of this, Oceaneering already realized cost savings (excluding depreciation) worth $100 million.

Zacks Rank & Key Picks

Oceaneering currently has a Zacks Rank #4 (Sell).

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