Lufkin Industries Reports 51% Increase in Third-Quarter Earnings To $1.15 Per Diluted Share Wednesday October 18, 7:00 am ET Strong Oil Field Results Drive 28% Increase in Total Lufkin Sales Increases 2006 Earnings Guidance to $4.42 to $4.60 per Diluted Share
LUFKIN, Texas, Oct. 18 /PRNewswire-FirstCall/ -- Lufkin Industries, Inc. (Nasdaq: LUFK - News) today announced financial results for the third quarter and nine months ended September 30, 2006. Sales increased 28.4% for the third quarter to $158.8 million from $123.7 million for the third quarter of 2005. Net earnings increased 53.8% to $17.4 million for the third quarter of 2006 from $11.3 million for the third quarter last year, while net earnings per diluted share grew 51.3% to $1.15 from $0.76. Lufkin's earnings per diluted share for the third quarter of 2006 included costs related to SFAS 123R (Expensing of Stock Options) totaling $0.02 per diluted share.
Sales for the first nine months of 2006 were $439.9 million, a 26.9% increase from $346.8 million for the comparable period in 2005. Net earnings grew 71.4% to $50.0 million from $29.2 million. Net earnings per diluted share increased 65.5% to $3.31 for the first nine months of 2006 from $2.00 for the first nine months of the prior year.
Douglas V. Smith, president and chief executive officer of Lufkin, stated, "We continue to be pleased with Lufkin's strong operating and financial results. Third-quarter 2006 revenues were up 28.4% compared to the same period in 2005 and backlog was up 16.8%. The oil field and power transmission business segments contributed growth in both revenues and backlog. Net margins rose to 11.0% of revenues as compared to 9.1%. Compared to the second quarter of 2006, revenues were up 7.5% and net income and earnings per diluted share remained strong. This reflected the impact of shifts in product mix and the expensing of one time costs associated with capacity expansions in oil field. As anticipated, the quarter ending backlog decreased by 7.2% from the second quarter of 2006, reflecting the near record production and shipments from oil field, timing delays in power transmission order releases and the Company's strategic decision to withdraw from the trailer van business.
"Lufkin's results were again led by our oil field business, which produced a 44.5% increase in third-quarter sales to $109.6 million compared with the third quarter last year and 9.6% growth in backlog to $79.7 million. We continued to experience high demand for our oil field automation and services capabilities. Oil field sales also rose a strong 13.3% on a sequential quarter basis, as manufacturing and shipments neared record levels. Our ability to produce to this level resulted from the expansion of our manufacturing capacity and the increasing efficiency of new oil field personnel, as well as other initiatives to reduce lead times for pumping equipment. Our successful implementation of these initiatives is also evident in the sequential-quarter reduction in our oil field backlog of 12.4%.
"Business activity in our power transmission segment also remained strong for the third quarter of 2006, as compared to the third quarter of 2005, resulting in an 18.1% increase in sales to $29.7 million and a 26.6% increase in backlog to $81.8 million. Because of strong demand and the lead times required to complete new power transmission projects, our third-quarter results also benefited from substantial demand for our gear repair and retrofit capabilities, both domestically and abroad. On a sequential-quarter basis, power transmission sales declined 4.2% from the second quarter of 2006, primarily due to timing issues for the completion of various contracts, and backlog increased 5.2%.
"As we expected, third-quarter results for Lufkin's trailer business were again affected by trucking industry issues, soft freight demand and driver shortages. This environment particularly affected demand for van trailers, resulting in the continuation of a highly competitive market for van sales. Lufkin has taken steps to decline additional orders for van trailers in order to expand manufacturing capacity for the production of flatbed and dump trailers, for which demand remains strong. Also, part of the factory will be converted to the production of oilfield equipment. Partially as a result, trailer sales for the third quarter declined 14.0% to $19.5 million from the third quarter of 2005 and 2.2% from the second quarter of 2006. Backlog for the trailer segment increased 13.0% from the third quarter last year to $31.7 million, which was 19.7% below the backlog at the end of the second quarter of 2006. The sequential reduction in backlog reflects an $8 million reduction in the van backlog."
Based on Lufkin's financial and operating results for the third quarter and first nine months of 2006, its backlog of $193.2 million at the end of the third quarter and its outlook for the remainder of 2006, the Company today increased its established guidance for earnings per diluted share for 2006 in a range of $4.42 to $4.60. The Company also established its guidance for earnings per diluted share for the fourth quarter of 2006 in a range of $1.10 to $1.28, compared with $1.03 for the fourth quarter of 2005. Lufkin's guidance for 2006 includes the impact of SFAS 123R, totaling $0.11 and $0.02 for the full year and for the fourth quarter, respectively. The pro forma impact on earnings per diluted share for 2005 reflecting the application of SFAS 123 totaled $0.08.
Mr. Smith concluded, "Energy price fluctuations have not impacted business at this time. Bookings from the energy sector were flat sequentially, reflecting the heavy vacation period, we have received no cancellations out of the ordinary, and quotation activities remain strong."