Oceaneering International Inc. Remains in the Red
After finally returning to profitability in the second quarter, it has since been all downhill for Oceaneering International (NYSE: OII). Its financial results dipped back into the red during the third quarter, and an even deeper loss was reported in the fourth. Unfortunately, the trend isn't expected to reverse anytime soon, with the company anticipating more disappointment this year than last. However, that's mainly due to pricing pressure, not a further deterioration of the oil market, which has finally started to stabilize.
Oceaneering results: The raw numbers
Metric | Q4 2017 | Q4 2016 | Year-Over-Year Change |
|---|---|---|---|
Revenue | $484.2 million | $488.4 million | (1%) |
Adjusted net income | ($8.0 million) | $3.2 million | N/M |
Adjusted EPS | ($0.08) | $0.03 | N/M |
Data source: Oceaneering International. EPS = earnings per share.
Image source: Getty Images.
What happened with Oceaneering this quarter?
Results took another step backward.
For the most part, the quarter was in line with expectations since the company had anticipated weaker results caused by the impacts of seasonality and continued lower levels of activities and pricing in its oil-field segments.
That said, its advanced technologies segment disappointed. While revenue rose, operating income declined versus the third quarter instead of improving as predicted because of execution issues and additional costs. As a result, underlying earnings came in below forecasts.
What's noteworthy is that while Oceaneering reported a loss, all its operating segments remained profitable on a stand-alone basis, though all posted lower results versus the third quarter due to seasonality. What pulled net income under were corporate costs.
What management had to say
As CEO Rod Larson pointed out:
On an adjusted basis for the fourth quarter, operating income was $20.4 million lower than that of the immediately preceding quarter, due to reduced profit contributions from each of Oceaneering's segments. The anticipated impacts from seasonality and the continued lower levels of activity and pricing in our oilfield segments were, overall, in line with our expectations. However, results for Advanced Technologies disappointed, with a decline in profitability instead of the improvement we had anticipated. Overall, our operating results and EBITDA were slightly less than our expectations, and each of our operating segments remained profitable.
The fourth quarter is traditionally weaker for the energy industry, which is attributable to the weather, so it wasn't surprising to see Oceaneering remain in the red. The company, though, has continued to battle the lingering effects of the oil market downturn, which has kept the pressure on pricing.
Looking forward
Those pricing headwinds aren't expected to abate in 2018. That's clear from the company's guidance, with Larson saying that for the year, the company projects that consolidated revenue will be down slightly, "with decreases in three of our energy segments, offset by increases in Asset Integrity and Advanced Technologies." Earnings, meanwhile, appear poised to remain in the red since the company expects its underlying profitability to fall 28% versus last year "due to reduced pricing for our service and product offerings and lower absorption of our manufacturing fixed costs resulting from lower expected throughput," according to the CEO.
But he did make one thing clear: As he emphasized, "[T]his decline should not be misconstrued as a further deterioration of our markets. With the exception of seasonality, we view the current market to be relatively stable." Thus, he added, "beyond 2018, with stable and improving long-term oil prices, we foresee an increase in offshore expenditures and improving demand for our energy-related services and products."
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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool recommends Oceaneering International. The Motley Fool has a disclosure policy.
