While the oil market is starting to heal after a prolonged and painful downturn, not all regions are getting better just yet. Offshore, in particular, remains a challenge, which is having an adverse impact on Oceaneering International's (NYSE: OII) financial results. That said, the company expects to keep its head above water this year even though its results continue sinking.
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Oceaneering results: The raw numbers
Data source: Oceaneering International.
Image source: Getty Images.
What happened with Oceaneering this quarter?
The revenue slide is slowing down.
- While revenue plunged 27% versus last year's fourth quarter, sales were only down 8.7% from last quarter, which is a slight improvement over the sequential decline of 11% Oceaneering experienced last quarter. The culprits were the asset integrity, remotely operated vehicles (ROV), and subsea projects segments, which experienced sequential declines of 12.1%, 13.2%, and 33.1%, respectively. Those weaknesses offset improvements in the subsea products and advanced technologies segments, where revenue rose 1.1% and 11.5%, respectively.
- Profitability, on the other hand, improved slightly versus last quarter on a GAAP basis, going from an $0.11 per-share loss to a $0.08 per-share loss. However, after adjusting for one-time items, profitability continued to erode, falling from a $2.6 million, or $0.03 per-share profit last quarter, to an adjusted loss of $4 million, or $0.04 per share, during the first quarter.
- That said, all the company's segments remained in the black during the quarter. However, operating income in the subsea projects segment plunged 92.3%, to just $0.2 million, due to reduced demand and pricing in the Gulf of Mexico for deepwater vessel and diving services. Meanwhile, asset integrity's operating profit also fell due to seasonality. On a more positive note, the advanced technologies segment benefited from increased commercial activities and work for the U.S. Navy.
- Despite the reported loss, Oceaneering still generated $41.2 million in free cash flow, up from $31.4 million in the year-ago period.
What management had to say
CEO Kevin McEvoy commented on the first quarter, noting:
While Oceaneering's financial results remain under pressure, it wasn't all bad news, as McEvoy notes, since its results did come in better than its forecast. Furthermore, all of its operating segments continue operating in the black, and its underlying business is generating free cash flow.
McEvoy also noted in the press release that the company saw some positives in its two largest segments: ROVs and subsea products. ROV EBITDA margin rose slightly, improving from 35% in the fourth quarter to 37% in the first quarter. Further, the company put two more ROVs into service during the quarter and maintained 53% market share. However, McEvoy did state that "although we endeavor to maintain our drill support market share and place more ROVs on vessels, we need a sizable increase in our customers' offshore spending levels for there to be a discernible increase in ROV fleet utilization and profitability."
Meanwhile, he noted that while subsea products revenue was flat, operating income improved due to cost-reduction measures. Meanwhile, thanks to rising new orders, the company's book-to-bill ratio improved from 0.74 over the past year to 0.84 during the quarter.
While Oceaneering sees some positives in its business, McEvoy still only expects the company to be "marginally profitable" this year. Still, he does expect to see operating income improvements next quarter in all segments except subsea production, which should remain flat. That said, the company won't see a noticeable improvement in results until offshore drilling starts picking up; the timing of that recovery, however, remains unclear.
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