Companies that provide services to oil and gas exploration and production specialists have gotten hurt by weak crude oil prices, and TechnipFMC (NYSE: FTI) has been among those hit hard by the energy slump. Between its offshore and onshore services, TechnipFMC relies on constant strong levels of activity in order to drive its results, and the volatility in energy markets hasn't provided the stability that investors prefer to see.
Coming into Wednesday's fourth-quarter financial report, TechnipFMC investors wanted to see further signs of improvement after an encouraging report a few months ago. Instead, the company's numbers suggested a deteriorating recovery in energy, raising new concerns about the future. Let's look more closely at TechnipFMC and what it said about the industry.
Continue Reading Below
TechnipFMC can't catch a break
TechnipFMC's fourth-quarter financial results weren't able to restore confidence in the company's immediate future. Revenue on a pro forma basis fell 16% to $3.68 billion, which was far below the $3.84 billion that most of those following the stock were expecting to see. GAAP (generally accepted accounting principles) losses widened by more than half from year-ago levels, and even after adjusting for one-time charges, adjusted earnings of $0.20 per share were less than half the consensus forecast among investors.
Adding insult to injury was the downward impact of tax reform on the company. TechnipFMC said that it had to take a charge of $138.2 million because of new tax laws, and that accounted for nearly all of the company's net loss on a GAAP basis.
As we've seen before, much of the decline in key metrics for TechnipFMC came from its subsea segment. Sales for the unit fell 36% on a pro forma basis, and operating profit fell by more than half from year-ago figures. Europe, Africa, and the Asia-Pacific region all saw reductions in project activity. Inbound orders of $1.72 billion helped raise segment backlogs slightly to $6.2 billion.
Elsewhere, TechnipFMC's performance was mixed. The onshore/offshore segment's top line fell 2%, but the unit reversed a year-earlier operating loss by posting a much more substantial operating profit. Inbound orders fell to $874 million, however, and backlog fell by almost $1.2 billion to $6.37 billion. Rising project activity offset the negative impact from the end of the first phase of a key liquefied natural gas project. The surface technologies unit did even better, with a 23% rise in pro forma revenue and a good-sized profit reversing a year-ago loss on an operating basis.
Can TechnipFMC bounce back?
CEO Doug Pferdehirt focused on the energy services company's strengths. "Our full year operational performance is a result of our relentless focus on project execution," Pferdehirt said, "and our commitment to delivering client success." The CEO said that its focus helped produce good results across all of its business segments.
TechnipFMC also tried to stay upbeat about its potential. Pferdehirt pointed to a key refinery expansion in Bahrain, increased rig counts in land-based North American shale plays, and more subsea projects helping to boost performance.
For 2018, TechnipFMC sees overall revenue coming in between $11.8 billion and $12.6 billion. Margins will be best in the surface technologies sector, where revenue should be between $1.5 billion and $1.6 billion. The biggest money-raiser will be onshore and offshore, with $5.3 billion to $5.7 billion in segment sales, but subsea will be just behind with guidance for $5 billion to $5.3 billion. The company upgraded its cost-savings estimates to $450 million annually by the end of 2019.
The energy sector remains volatile, and TechnipFMC will have to keep finding ways to overcome its challenges. Until conditions really improve, it'll be difficult for TechnipFMC to reach its full potential.
10 stocks we like better than TechnipFMCWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and TechnipFMC wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 5, 2018