A month has gone by since the last earnings report for FMC Technologies (FTI - Free Report) . Shares have lost about 9.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is FMC Technologies due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
TechnipFMC Posts Weak Results in Q1, Backlog Rises Y/Y
TechnipFMC reported first-quarter 2019 adjusted earnings of 6 cents a share, significantly lagging the Zacks Consensus Estimate of 30 cents. The underperformance was primarily attributed to lower-than-expected EBITDA from the Surface Technologies unit. Precisely, adjusted EBITDA from the segment came in at $30.1 million, missing the Zacks Consensus Estimate of $61 million by a huge margin.
The bottom line also deteriorated sharply from the year-ago earnings of 28 cents a share due to lower y/y contribution across all its segments in the quarter under review.
First-quarter revenues came in at $2,913 million, which missed the Zacks Consensus Estimate of $3,163 million and decreased 7% from the prior-year figure of $3,125 million.
However, on an encouraging note, TechnipFMC’s total backlog at the end of the quarter was $17,777.6 million, reflecting year-over-year growth of 27%. This is attributed to uptick in inbound orders, which came in at $6,184.5 million, up 77% from the year-ago period.
Subsea: The segment’s revenues in the quarter under review were $1,185.3 million, a tad higher than the year-ago figure of $1,180.2 million. However, competitively priced backlog and lower vessel utilization dented the segment’s operating profits, which declined 8.3% y/y to $50 million. Notably, vessel utilization rate declined to 55% from 60% in the prior-year period. Adjusted EBITDA also declined 18.8% from the year-ago period to $139.7 in the quarter under review due the above-mentioned factors, partly offset by cost-cut initiatives.
On an encouraging note, the segment’s inbound orders increased on the back of ramped-up upstream operations, attributable to rebounding oil prices (which increased more than 30% in the first quarter). Inbound orders came in at $2,677.6 million, increasing 118% on a year-over-year basis. The increased inbound orders in turn boosted the segment’s backlog, which totaled $7,477.3 million, reflecting a rise of 22.4% from the year-ago period.
Onshore/Offshore: This segment generated revenues of $1,335.1 million, declining 15.1% from the prior-year quarter. The reported revenues were negatively impacted by the completion of some key projects, especially Yamal LNG. Operating profit of the segment totaled $155.7 million, decreasing 23.3% from the first-quarter 2018 level due to lower revenues and margins. Adjusted EBITDA also fell 9.4% from a year ago to $194.8 million.
However, the segment brought some respite as its inbound orders jumped 69.7% year over year to $3,138 million in the quarter. As such, backlog also increased 31.7% from the prior-year period to $9,862.7 million.
Surface Technologies: The company’s smallest segment, Surface Technologies recorded revenues of $392.6 million, up 5.7% y/y on higher demand of pressure control equipment, outside North American markets. However, unfavorable product mix and one-time charges associated with new product introduction weighed on its operating profit and adjusted EBITDA, which declined 65.7% and 40.2% y/y to $10.5 million and $30.1 million, respectively.
Further, the segment’s inbound orders declined 10.2% year over year to $368 million. Nonetheless, backlog was $437.6 million in the quarter, up 7% from the year-ago period.
Dividend, Capex and Financials
The board of directors declared a quarterly cash dividend of 13 cents per share, payable on Jun 5, 2019 to its shareholders of record at the close of business as of May 21.
In the reported quarter, TechnipFMC spent $178.2 million on capital programs. As of Mar 31, the company had cash and cash equivalents of $4,965.3 million and a long-term debt of $3,725 million, with a debt-to-capitalization ratio of 26.4%.
Revised 2019 Guidance
While TechnipFMC has kept revenue and EBITDA margin forecasts for its Subsea segment intact, it has tweaked the projections for Onshore/Offshore and Surface Technologies segments.
The company now expects revenues from the Onshore/Offshore segment in the band of $6-$6.3 billion versus earlier guided range of $5.7-$6 billion. The increased EBITDA margin of 14% versus prior forecast of 12% provides a ray of hope.
However, sales and EBITDA margin forecasts from the Surface Technologies segment have declined, denting investors’ sentiments. It expects revenues within $1.6-$1.7 billion versus previous guided range of $1.7-$1.8 billion. EBITDA margin is also expected to fall to 12% from the prior forecast of 17%. The company expects limited activity growth in North American markets for the remainder of the year. While TechnipFMC expects activities outside North America to improve at a high-single digit to low-double-digit rate in 2019, the firm expects pricing pressure to continue this year.
Subsea revenues and EBITDA margin remain unchanged at $5.4-$5.7 billion and 11%, respectively. Capex budget for 2019 also remains intact at $350 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, FMC Technologies has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, FMC Technologies has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.