What Are Dril-Quip’s Value Drivers?
Is Dril-Quip Positioned to Outperform Industry Peers?
Dril-Quip’s revenue growth
Dril-Quip’s (DRQ) revenues were on a downtrend from 4Q14 through 1Q16. DRQ’s North and South America regions generated 16% lower revenues in 1Q16 compared to a year ago. Most of DRQ’s oilfield services (or OFS) industry peers witnessed lower revenues from North America in 1Q16. DRQ’s Asia-Pacific region revenues, on the other hand, increased 19% in 1Q16 compared to a year ago.
On a product-wise level, revenues from products sales fell 28% in 1Q16 over the previous year while revenues from services fell 18% during the same period.
In 1Q16, Dril-Quip recorded total revenues of $167 million, down 26% from $226 million recorded in 1Q15. In comparison, Baker Hughes (BHI), Dril-Quip’s larger market cap peer, recorded $2.7 billion in revenues in 1Q15, down 42% from a year ago.
Dril-Quip’s operating and net income
Operating income in Dril-Quip’s North and South America geography decreased 24% from 1Q15 to 1Q16. Its Asia-Pacific region saw a strong performance where operating income improved 78% in 1Q16 compared to a year ago. However, compared to 4Q15, Asia-Pacific region’s 1Q16 operating income was 34% lower.
In 1Q16, Dril-Quip’s reported net income was ~$37 million, or 31% lower compared to 1Q15. Dril-Quip makes up 0.02% of the iShares Core US Value ETF (IUSV). IUSV invests 12.4% of its holdings in the energy sector.
Identifying value drivers for Dril-Quip
Volatile crude oil prices are leading to declining capital expenditure budgets for upstream energy producers.
Lower booking levels could lead to a lower backlog.
During 2015, DRQ performed 14 complex projects, which represented 16% of fiscal 2015 revenues. These projects have relatively longer manufacturing timeframes.
A foreign exchange gain of $5.4 million in 1Q16 had a positive effect on earnings.
Next, we’ll discuss Dril-Quip’s free cash flows.
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