It has been about a month since the last earnings report for Oceaneering International (OII). Shares have lost about 15.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Oceaneering International due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Oceaneering Reports Wider Q2 Loss
Oceaneering International reported adjusted loss per share of 32 cents. The Zacks Consensus Estimate was for a narrower loss of 25 cents, while in the year-ago period Oceaneering International lost 23 cents per share. The underperformance could be attributed to disappointing performance from the ‘Asset Integrity’ and the ‘Advanced Technologies’ units.
The company’s revenues of $495.8 million came below the Zacks Consensus Estimate of $526 million but improved 3.6% year over year on growing sales from the ‘Remotely Operated Vehicles’ and the ‘Subsea Products’ segments.
Meanwhile, a bright spot in the report was the company’s free cash flow, which turned positive through the first half of 2019. To be precise, Oceaneering International’s roughly $1.8 million in free cash flow during the first six months of the year rebounded from a negative $37.8 million in the comparable period of 2018. Notably, it looks more likely that the provider of offshore equipment and technology solutions to the energy industry would be able to achieve positive free cash flow this year.
Remotely Operated Vehicles (ROV): This segment’s revenues were $120.4 million compared with $107.4 million in second-quarter 2018. The segment’s operating income was $8.7 million, up from $4.5 million in the year-ago quarter. Days on hire rose 13% year over year to 15,423 while vessel utilization increased to 62% in the quarter under review compared to 54% a year ago.
Subsea Products: The segment’s revenues came in at $138.9 million, up from the prior-year figure of $121.7 million. Meanwhile, the segment’s operating income registered year-over-year growth of 223% to $7.4 million. The improvement could be attributed to considerably higher manufactured products sales and strong operating margin out of its service and rental offerings. Moreover, the segment backlog surged to $596 million as of Jun 30, 2019, compared to Oceaneering International’s year-ago backlog of $245 million.
Subsea Projects: Revenues from this segment edged down 3.8% to $75.1 million from $78 million recorded in the year-ago quarter on lower-than-expected call-out work. However, the unit generated an operating income of $87,000, turning around from a loss of $10.4 million in second-quarter 2018 due to favorable product mix, robust execution and stable pricing (in the international and U.S. Gulf of Mexico markets).
Asset Integrity: The segment’s revenues totaled $61.2 million, lower than the year-ago figure of $67.4 million. Hit by pressure on pipeline inspection services, the segment incurred an operating loss of $1.3 million against the prior-year income of $3.4 million.
Advanced Technologies: Revenues from this non-energy segment were recorded at $100.2 million, slightly lower than $104.1 million in second-quarter 2018 as Oceaneering International missed on a large U.S. Navy contract. Meanwhile, operating income fell to $7.2 million from $7.9 million in the year-ago quarter due to timing issues with the company’s commercial theme park business.
Capital Expenditure & Balance Sheet
Capital expenditure in the second quarter, including acquisitions, totaled $40.9 million. As of Jun 30, Oceaneering International had cash and cash equivalents of $710.1 million, and a long-term debt of around $795.6 million. The debt-to-capitalization ratio of the company was 36.9%.
EBITDA Guidance & Outlook
With ‘Subsea Project’ call-out work not materializing as per expectations, Oceaneering International narrowed its full-year EBITDA guidance. The company now sees 2019 adjusted EBITDA of $150-$170 million versus its earlier view of $150-$180 million. Notably, Oceaneering International generated adjusted EBITDA of $70.7 million for the six months ended Jun 30, 2019.
Looking ahead to third-quarter profitability, the company expects sequential improvement from its ‘Advanced Technologies’ unit but lower contribution from the ROV and the ‘Subsea Products’ segments. The other businesses are likely to generate flat results.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -42.31% due to these changes.
Currently, Oceaneering International has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Oceaneering International has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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