Can Forum Energy Technologies Recover from Energy Price Crash?
Forum Energy Technologies’ revenue growth by segments
In fiscal 4Q15, Forum Energy Technologies’ (FET) Production & Infrastructure segment was more resilient, with a 42% fall in revenue on a year-over-year basis. The company’s Drilling & Subsea segment was the worst performer, with a 62.6% fall. The following were the main factors that resulted in the revenue fall:
- lower drilling and subsea capital equipment sales
- lower demand for drilling and subsea consumable products
- reduced pressure pumping equipment sales
In fiscal 2015, Forum Energy Technologies recorded total revenues of $1.1 million, 38% less than the $1.7 billion recorded in fiscal 2014. In comparison, Superior Energy Services (SPN), Forum Energy Technologies’ larger market-cap peer, recorded $2.8 billion in revenues in fiscal 2015, 39% lower than a year ago.
Forum Energy Technologies’ operating and net income
Both of Forum Energy Technologies’ segments turned to an operating loss from fiscal 4Q14 to fiscal 4Q15. The worst affected was the Drilling & Subsea segment, where fiscal 4Q15 operating loss was $42 million compared to $46 million operating income in fiscal 4Q14.
In fiscal 4Q15, Forum Energy Technologies reported a net loss of ~$164 million compared to $46 million net income in fiscal 4Q14. In fiscal 4Q15, FET’s reported earnings were negatively impacted by the following:
- $125 million pre-tax goodwill and intangible asset impairment charge
- $43 million pre-tax inventory and working capital reserve
For fiscal 2015, FET’s reported net loss was $119 million compared to $174 million net income in fiscal 2014. Forum Energy Technologies is 0.1% of the iShares Russell 2000 Value ETF (IWN).
Identifying trends in FET’s value drivers
- valves product line: Book-to-bill ratio in the valves product line started to increase in fiscal 4Q15. This product line benefits from exposure to the downstream and midstream industries.
- lower revenue: Management expects 10%–15% lower fiscal 1Q16 revenue compared to fiscal 4Q15 due to lower energy prices and a lower upstream drilling budget.
- cost savings: Improving manufacturing cycle times is expected to result in cost savings. However, high fixed costs may outweigh such cost reduction efforts.
Next, we’ll take a look at Forum Energy Technologies’ indebtedness.
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