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Dril-Quip (DRQ) Down 8.3% After Q1 Earnings Miss: Here's Why
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Since the announcement of weaker-than-expected first-quarter results on May 6, Dril-Quip, Inc. (DRQ - Free Report) has seen a decline of 8.3% in share price. Demand destruction caused by coronavirus-induced lockdowns and travel bans has kept crude prices in the bearish territory, thereby hurting upstream companies. This has reduced demand for drilling equipment suppliers like Dril-Quip. The market outlook seems bearish at the moment.
Weaker-Than-Expected Q1 Results
Dril-Quip reported first-quarter 2020 adjusted loss per share of 2 cents against the Zacks Consensus Estimate of break-even earnings. However, the bottom line improved from a loss of 12 cents in the year-ago quarter.
It registered total revenues of $96 million in the quarter, higher than $94.3 million in the year-ago period. However, the figure missed the Zacks Consensus Estimate of $99 million.
The weaker-than-expected quarterly results were due to a decline in activity and product deliveries on account of inefficiencies and scheduling delays stemming from the coronavirus pandemic, especially in the Eastern Hemisphere. Higher cost and expenses also affected the bottom line. This was partially offset by higher product volumes, primarily in fabricated joints.
Dril-Quip reported product bookings of $57.9 million in the quarter. The current market volatility resulted in delays in client decisions to order equipment for the upcoming and scheduled projects. This dragged down the metric from the prior-year quarter. The company’s manufacturing productivity and global supply chain have witnessed disruptions, as clients have adjusted their capital priorities due to market turmoil. Coronavirus-induced lockdowns have resulted in energy demand destruction. This apart, the oversupplied oil and gas market has wreaked havoc on the exploration and production industry by reducing oil and gas prices. As a result, demand for Dril-Quip’s services declined from the year-ago quarter.
Operating loss of $42.3 million significantly widened from a loss of $5.6 million in the prior-year quarter.
Total Costs and Expenses Increase
On the cost front, cost of sales jumped to $71.4 million in the reported quarter from $69.4 million in the year-ago period. Engineering and product development costs rose to $5.5 million in the quarter from the year-ago level of $3.6 million. However, selling, general and administrative expenses declined to $21.4 million from the year-ago level of $24.5 million. Total cost and expenses during the quarter totaled $138.3 million compared with $99.9 million in the year-ago period. The company’s cost-saving initiatives were offset by impairment and restructuring charges.
Share Buyback
In the first quarter, Dril-Quip repurchased 808,389 shares under the stock buyback program (approved on Feb 26, 2019) at an average price of $30.91 per share totaling $25 million. Of the $100-million authorized under the share buyback program, it has used $51 million so far.
Free Cash Flow
Dril-Quip’s free cash flow in the first quarter was negative $25.4 million compared with negative free cash flow of $2.7 million in the year-ago period, owing to slower collections the latter part of the quarter.
Backlog
At first quarter-end, the company had $261 million in backlog, down from $273 million as of Dec 31, 2019. Of the existing backlog, 70% will likely be converted to revenues this year, while the rest will be converted the next year.
Financials
Dril-Quip recorded $4.2 million capital expenditure in the quarter, higher than the year-ago level of $3.5 million.
As of Mar 31, 2020, its cash balance was $343.5 million, down from the fourth-quarter level of $399 million. It had total available liquidity of $388 million. The company’s balance sheet is free from debt load, which indicates a sound financial position.
Guidance
For 2020, it expects maintenance capital expenditures in the range of $10-$15 million.
To navigate through the current market uncertainty, the company plans to streamline business operations, which can result in $20 million of cost savings per annum. Of the total, $10 million is expected to be realized in the second half of the year. Despite the present market situation, it expects to record positive free cash flow in the current year.
EnLink Midstream’s 2020 earnings per share are expected to rise 97.9% year over year.
CNX Resources beat earnings estimates thrice and met once in the last four quarters, with average positive surprise of 111.5%.
Comstock Resources’ 2020 sales are expected to gain 32.7% year over year.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Dril-Quip (DRQ) Down 8.3% After Q1 Earnings Miss: Here's Why
Since the announcement of weaker-than-expected first-quarter results on May 6, Dril-Quip, Inc. (DRQ - Free Report) has seen a decline of 8.3% in share price. Demand destruction caused by coronavirus-induced lockdowns and travel bans has kept crude prices in the bearish territory, thereby hurting upstream companies. This has reduced demand for drilling equipment suppliers like Dril-Quip. The market outlook seems bearish at the moment.
Weaker-Than-Expected Q1 Results
Dril-Quip reported first-quarter 2020 adjusted loss per share of 2 cents against the Zacks Consensus Estimate of break-even earnings. However, the bottom line improved from a loss of 12 cents in the year-ago quarter.
It registered total revenues of $96 million in the quarter, higher than $94.3 million in the year-ago period. However, the figure missed the Zacks Consensus Estimate of $99 million.
The weaker-than-expected quarterly results were due to a decline in activity and product deliveries on account of inefficiencies and scheduling delays stemming from the coronavirus pandemic, especially in the Eastern Hemisphere. Higher cost and expenses also affected the bottom line. This was partially offset by higher product volumes, primarily in fabricated joints.
DrilQuip, Inc. Price, Consensus and EPS Surprise
DrilQuip, Inc. price-consensus-eps-surprise-chart | DrilQuip, Inc. Quote
First-Quarter Performance
Dril-Quip reported product bookings of $57.9 million in the quarter. The current market volatility resulted in delays in client decisions to order equipment for the upcoming and scheduled projects. This dragged down the metric from the prior-year quarter. The company’s manufacturing productivity and global supply chain have witnessed disruptions, as clients have adjusted their capital priorities due to market turmoil. Coronavirus-induced lockdowns have resulted in energy demand destruction. This apart, the oversupplied oil and gas market has wreaked havoc on the exploration and production industry by reducing oil and gas prices. As a result, demand for Dril-Quip’s services declined from the year-ago quarter.
Operating loss of $42.3 million significantly widened from a loss of $5.6 million in the prior-year quarter.
Total Costs and Expenses Increase
On the cost front, cost of sales jumped to $71.4 million in the reported quarter from $69.4 million in the year-ago period. Engineering and product development costs rose to $5.5 million in the quarter from the year-ago level of $3.6 million. However, selling, general and administrative expenses declined to $21.4 million from the year-ago level of $24.5 million. Total cost and expenses during the quarter totaled $138.3 million compared with $99.9 million in the year-ago period. The company’s cost-saving initiatives were offset by impairment and restructuring charges.
Share Buyback
In the first quarter, Dril-Quip repurchased 808,389 shares under the stock buyback program (approved on Feb 26, 2019) at an average price of $30.91 per share totaling $25 million. Of the $100-million authorized under the share buyback program, it has used $51 million so far.
Free Cash Flow
Dril-Quip’s free cash flow in the first quarter was negative $25.4 million compared with negative free cash flow of $2.7 million in the year-ago period, owing to slower collections the latter part of the quarter.
Backlog
At first quarter-end, the company had $261 million in backlog, down from $273 million as of Dec 31, 2019. Of the existing backlog, 70% will likely be converted to revenues this year, while the rest will be converted the next year.
Financials
Dril-Quip recorded $4.2 million capital expenditure in the quarter, higher than the year-ago level of $3.5 million.
As of Mar 31, 2020, its cash balance was $343.5 million, down from the fourth-quarter level of $399 million. It had total available liquidity of $388 million. The company’s balance sheet is free from debt load, which indicates a sound financial position.
Guidance
For 2020, it expects maintenance capital expenditures in the range of $10-$15 million.
To navigate through the current market uncertainty, the company plans to streamline business operations, which can result in $20 million of cost savings per annum. Of the total, $10 million is expected to be realized in the second half of the year. Despite the present market situation, it expects to record positive free cash flow in the current year.
Zacks Rank & Stocks to Consider
Currently, Dril-Quip has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space include EnLink Midstream LLC (ENLC - Free Report) , CNX Resources Corporation (CNX - Free Report) and Comstock Resources, Inc. (CRK - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
EnLink Midstream’s 2020 earnings per share are expected to rise 97.9% year over year.
CNX Resources beat earnings estimates thrice and met once in the last four quarters, with average positive surprise of 111.5%.
Comstock Resources’ 2020 sales are expected to gain 32.7% year over year.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?
Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2020 today >>